Gas and LNG Sales and Transportation Agreements: Principles and Practice [7 ed.]

Table of contents :
SECTION I
PART A: GENERAL PRINCIPLES
1. The nature of gas and LNG
2. Project structuring
3. The contracting process
4. Regulatory issues
5. Price
6. Price review
7. Collateral support
PART B: GAS AND LNG SALES
8. Contract forms
9. Parties
10. Term
11. The delivery point, delivery
12. Quantities, rates, reserves
13. Nominations, scheduling
14. Shortfall
15. Undertake, overtake
16. Take and pay, take or pay
17. Make up, carry forward
PART C: GAS TRANSPORTATION
18. Pipeline principles
19. Parties
20. Term
21. The input point, the delivery point
22. Quantities, capacities
23. Transporter and shipper obligations
24. Transporter and shipper failure
25. Tariff, capacity payment, ship or pay
26. Commingling, allocation, attribution
PART D : LNG TRANSPORTATION
27. LNG shipping
28. Charterparty and SPA interfaces
PART E: COMMON COMPONENTS
29. Invoicing, payment
30. Quality specification
31. Off-specification gas and LNG
32. Measurement
33. Facilities
34. Maintenance
35. Force majeure
36. Liability, limitation
37. Transfers, third-party performance, control
38. Termination
39. Dispute resolution
40. Other provisions
SECTION II
Appendix A – Proforma Gas Sales Memorandum of Understanding
Appendix B – Proforma Gas Sales Agreement
Appendix C – Proforma Gas Transportation Memorandum of Understanding
Appendix D – Proforma Gas Transportation Agreement
Appendix E – Additional Drafting

Citation preview

Introduction, UKBC-GASLNGS 493298546 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas Introduction 1-001

An understanding of the basic chemical and physical properties of gas (in all of its possible forms) will be essential to persons planning to contract for its commercialisation since those properties will in many ways shape the nature of the resultant gas sales, storage, processing and transportation contracts. End of Document

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What is Gas?, UKBC-GASLNGS 493298545 (2023)

What is Gas? Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas What is Gas? 1-002

Gas is a shorthand term for hydrocarbon deposits which occur naturally in a gaseous or in a mixed gaseous and liquid state, consisting primarily of methane (also called C1), ethane (or C2), and then the progressively heavier hydrocarbon fractions, according to the following table: Methane (C1)

CH

4

Ethane (C2)

C

2

H

6

Propane (C3)

C

3

H

8

Butane (C4)

C

4

H

10

Pentane (C5)

C

5

H

12

Hexane (C6)

C

6

H

14

Heptane (C7)

C

7

H

16

Octane (C8)

C

8

H

18

This is natural gas, which at the point of production is often called “raw gas”. Although raw gas consists predominantly of hydrocarbon fractions, and within those fractions the gas stream is typically (between 70 per cent and 95 per cent) methane, at the point of production the raw gas stream could also contain minute vapourised traces of non-hydrocarbon based components such as water, carbon dioxide, sulphur compounds, hydrogen sulphide, nitrogen, mercury and also minute solid particles of sand, dust and wax. 1-003

Raw gas can also be distinguished from the synthetically-produced mixtures of methane and other gases which are derived from the distillation of coal (often called “town gas” or “syn-gas”). Natural gas is a fossil fuel which has been formed by the exposure of decomposing plant and animal matter to intense heat and pressure over millions of years. This is thermogenic gas, which is the primary objective of exploration drilling. Biogenic gas is gas which is created in shallow sedimentary basins (such as marshes and bogs) by micro-organic agents. Gas sales and transportation contracts should apply a technical definition of gas which accurately represents the precise nature of the commodity which is being sold, purchased and transported. That said, there is no standard or industry-wide accepted definition of gas which is applied universally in contracts for gas sales and transportation. 1

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What is Gas?, UKBC-GASLNGS 493298545 (2023)

Footnotes 1

This discrepancy is reflected in the model form contracts which are used in the industry, and even within the various contracts which are published by a particular industry body—the Association of International Energy Negotiators (AIEN) GSA (6-004) defines natural gas as “gaseous hydrocarbons, or a mixture of gaseous hydrocarbons and inert gases, existing in the gaseous state or in solution in oil under reservoir conditions and includes Natural Gas associated with oil, Natural Gas dissolved in oil and Natural Gas not dissolved in oil”; whereas the AIEN LNG MSPA (6-004) defines natural gas as “any combustible hydrocarbon or mixture of hydrocarbons consisting primarily of methane and including other combustible and non-combustible gases in a gaseous state” and the AIEN model form joint operating agreement defines natural gas as “all Hydrocarbons in a gaseous state at standard temperature and pressure (including wet gas, dry gas, and residue gas)”.

End of Document

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Other Gas Forms, UKBC-GASLNGS 493298548 (2023)

Other Gas Forms Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas Other Gas Forms 1-004

There are several further derivations to note on the general theme of gas: (i)Condensate (also called “light liquid hydrocarbon”) is a term used to describe the heavier (pentane to octane) hydrocarbon fractions which exist in a liquid form at ordinary atmospheric temperature and pressure (and which could even take the appearance of a very light form of oil), although in sub-surface (reservoir) conditions these fractions will typically exist in a gaseous state because of the greater temperatures and pressures underground. A gas producer could have an interest in extracting the condensate from a gas stream as part of the commercialisation of gas reserves where the condensate can be sold separately from the resultant dry gas stream. Indeed, a project whose economics are based on the value attributed to such stripped condensate could be the foundation for the sale of the resultant dry gas effectively as a by-product. Alternatively, the presence of condensate could present a problem where a gas producer has a buyer with a demand only for dry gas and there is no obvious market for the stripped condensate. (ii)Associated gas (also called “solution gas” or “casinghead gas”) is gas which exists in solution with, or which exists in close contact with, oil deposits and which is produced only when the oil deposits with which it is associated (the associated liquids) are produced. The associated gas will need to be separated from the associated liquids. Consequently, any interruption to the production of the associated liquids might also interrupt the production of the associated gas, and vice versa. Correspondingly, non-associated gas is gas which can be produced without dependence upon the production of any associated liquids. Virtually all oil deposits have some accumulations of gas associated with them but many gas accumulations exist independently of any oil (where such gas is sometimes called “free gas”). A gas producer’s decision as to whether it is viable to develop an associated gas field will usually be made only in conjunction with an assessment of the viability of developing the field for the production of the associated liquids. Where gas is produced as a consequence of the production of associated liquids then the gas producer will need to do something with that gas. The gas producer’s options are to vent or flare the gas, although a gas producer should be reluctant to waste a resource in this manner and it is often the case that a regulatory consent which may be required to permit venting or flaring will greatly limit the extent of such an activity. Alternatively, the gas producer can reinject the gas back into the reservoir, which has the advantage of maintaining reservoir pressure, although there will be limits to the amount of reinjection which can take place in the interests of maintaining the integrity of the structure of the reservoir, and such reinjection does not guarantee a later return of the entirety of the injected gas volumes. Alternatively the gas producer could sell the associated gas. Where an arrangement for the sale of the associated gas component is necessary to make the production of the associated liquids economical, a gas buyer might argue that the contract price (13-001) should show a relative discount to reflect the additional value to the gas producer of the associated liquids stream which the gas producer has become able to commercialise in consequence of the associated gas sales contract. Associated gas sales could also be structured as interruptible (11-014) or as a seller’s nomination sale (18-003) in order to take account of the exigencies of the associated liquids production. Associated gas production is not inherently unreliable simply because of what it is. There are significant associated gas deposits which have been commercialised effectively as stand-alone gas sales projects. (iii)Natural gas liquids (NGLs) is a term used to describe the ethane, propane and butane fractions which are extracted from a gas stream. Wet gas is a term used indiscriminately to describe gas having high condensate and natural gas liquids

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Other Gas Forms, UKBC-GASLNGS 493298548 (2023)

content; not quite correspondingly, dry gas is often used to describe methane, or a combination of methane and ethane. Wet gas and dry gas are also used sometimes (inaccurately) as terms to indicate the levels of water found in a gas stream. Rich gas indicates raw gas which is higher in the heavier hydrocarbon fractions, whilst lean gas indicates raw gas which is principally methane. (iv)Liquefied natural gas (LNG) is predominantly methane which has been liquefied through a process of refrigeration (and which, when it is regasified, gives regas). LNG is considered in more detail in Part D of this book. (v)Liquefied petroleum gas (LPG), also called “bottle gas” or “tank gas”, is any mixture of propane and butane (the exact proportions will depend on the intended product use but a ratio of 70:30 is common), which can exist in a liquid or gaseous state and which is stored in pressurised containers for use as vehicle fuel or heating fuel. (vi)Liquefied ethane is a consequence of the US shale gas revolution, whereby significant amounts of ethane (as a byproduct of methane production) have emerged, making it a viable commodity for export from the US to markets in Europe, India and China (principally for use as a feedstock in petrochemical production). Ethane can be liquified for shipping (by refrigeration to approximately −90°C), and then shipped in a refrigerated state using the same cargo containment systems which are applied to the transportation of LNG. Recent developments include the development of very large ethane carriers (VLECs), with a cargo-carrying capacity of between 85,000m 3 and 97,000m 3 , and ultra large ethane carriers (ULECs), with a cargo-carrying capacity of approximately 150,000m 3 . Such ships could also be capable of transporting LNG cargoes with only minor modifications, which increases their appeal. (vii)Compressed natural gas (CNG) is primarily methane which is compressed and stored in high-pressure tanks for transportation and which can be used as vehicle fuel. CNG production omits the expensive capital costs of the gas liquefaction and LNG regasification elements which are associated with the production of LNG, although the compression volume resulting from CNG production is much less than is the case for LNG. (viii)Sour gas is gas which contains relatively significant amounts of hydrogen sulphide (H 2 S), and sweet gas is gas which does not. The term “acid gas” is sometimes used interchangeably with sour gas, although strictly speaking acid gas is a gas that contains relatively significant amounts of any acidic gases, such as carbon dioxide or hydrogen sulphide. 2 (ix)Unconventional gas is a generic term used to describe natural gas deposits which are recoverable by any technology other than conventional drilling (such as by hydraulic fracture stimulation (“fraccing”)). This includes coal bed methane (CBM)—also called “coal seam gas” (CSG)), abandoned mine methane (AMM—methane deposits which build up in disused coal mine workings), hydrates (methane deposits trapped within a crystalline water structure like ice), shale gas (raw gas deposited within fissile, relatively impermeable mineral strata) and tight gas (raw gas which is difficult to extract because of its accompanying geological conditions). Arrangements for the commercialisation of unconventional gas are considered further in Ch.4. (x)Responsibly sourced gas (RSG) is gas which has been independently certified as having been produced in what is declared to be an environmentally responsible manner (by reference to meeting objective standards for factors such as associated greenhouse gas emissions (8-006), land use, water course protection and community impacts). This form of gas is particularly relevant to a need for evidencing compliance with environmental, social and governance provisions in a sales contract (41-011).

Footnotes 2

This is not to say that sour gas has no commercial value. The associated sulphur can be removed from the gas stream for sale, and some gas projects are specifically engineered around the commercialisation of sour gas (see for example the Shah sour gas project in the United Arab Emirates, operated by the Abu Dhabi National Oil Company (ADNOC)).

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Other Gas Forms, UKBC-GASLNGS 493298548 (2023)

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The Behaviour of Gas, UKBC-GASLNGS 493298549 (2023)

The Behaviour of Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas The Behaviour of Gas 1-005

Gas is a fluid (meaning that it is a dynamic, rather than a liquid, body) which is composed of molecules in constant and chaotic motion. Gas is highly compressible but equally it will expand to fill any vessel in which it is placed. The behaviour of gas with reference to the three primary behavioural characteristics of temperature (the thermodynamic quotient of the gas), pressure (the molecular compression of the gas) and volume (the space occupied by a given quantity of gas) can be predicted in part by the application of three theoretical laws, together called “the gas laws”: (i) Boyle’s Law. Also called “Mariotte’s Law”, or the “Boyle-Mariotte Law”, which says that the volume of gas is inversely proportional to pressure where temperature is constant. (ii) Charles’ Law. Also called “the law of volumes”, which says that the volume of gas is directly proportional to temperature where pressure is constant.

1-006

(iii) Gay-Lussac’s Law. Also called “the pressure law”, which says that the pressure of gas is directly proportional to temperature where volume is constant. The gas laws apply to a gas in theory (to what is sometimes called an “ideal gas”, being a hypothetical gas which ignores the properties of a real gas) and much of the behaviour of a real gas ignores these theorems, not least since the principles referred to above will not apply where anything other than standardised conditions apply. The gas laws are still useful, however, as a baseplate for predicting the physical behaviour of gas when preparing arrangements for the sale and transportation of gas. Such a prediction will require recognition that there is a system of interdependent variables (temperature, pressure and volume, but also the chemical composition of the gas) which will be determined on a case-by-case basis and which will condition many of the gas sale and transportation terms: (i)Raw gas at the point of its production from source will be at a relatively high temperature and pressure and will typically be at that temperature and pressure immediately at the point of entry into a pipeline prior to the transportation of the gas (unless an intervention is made to change the temperature or pressure). (ii)As gas expands into a pipeline its temperature and pressure will begin to fall. There will be a continuing cooling of the gas and pressure drop over the length of the pipeline, and friction between the gas and the pipeline wall will also cause a continuing pressure drop. (iii)Compression of the gas (specifically through the operation of compressors, or by a reduction in pipeline volume as the gas passes through a reduced pipeline section, or in the manufacture of CNG (see above)) will increase the temperature and the pressure of the gas.

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The Behaviour of Gas, UKBC-GASLNGS 493298549 (2023)

(iv)The satisfaction of a required pressure and temperature test for the delivery of gas at the delivery point in a pipeline gas sale (11-002) will be derived from the pressure and temperature of the gas at the point of input into a pipeline, the effects of pressure drop and compression over the length of the pipeline, and gas heating or cooling at the delivery point. (v)The maximum operating pressure of any gas pipeline will be determined by the dimensions of the pipeline and the application of compression. This will be relevant in determining the availability of linepack quantities (28-008) and wider delivery flexibility options. (vi)The temperature reduction which inevitably accompanies the refrigeration of methane to give LNG (see above) leads to a significant reduction in gas volume. This allows for gas to be transported, in its compressed and refrigerated state, as a liquid. End of Document

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Gas Measurement Units, UKBC-GASLNGS 493298543 (2023)

Gas Measurement Units Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas Gas Measurement Units 1-007

Gas sales and transportation arrangements measure in particular the volume, the calorific value and the pressure of the gas to be sold and transported, using a variety of different units across different contracts: (i) Volume.

The imperial unit for the measurement of gas volume is the cubic foot (cu.ft. or ft 3 ). In its simplest form this is defined as the amount of gas that would nominally fill the space represented by a cubic foot but because gas expands and contracts according to changes in pressure and temperature (see above), the measurement of a cubic foot is typically standardised at a temperature of 60°F and at a pressure of 14.7 pounds per square inch to give a standard cubic foot (scf). In the SI (or modern metric) system gas (and particularly LNG) volume is measured in cubic metres (m 3 ), where one cubic metre (defined, for example, in ISO 1000:1992(E)) is approximately equal to 35.3 cubic feet. In the sale of LNG the inship volume of LNG is typically measured volumetrically (in thousands of cubic meters) but the sales volume of LNG is typically measured in units of calorific value. Production volumes of LNG are also measured in millions of metric tonnes (MT). The units of volume used variously in this book are: standard cubic foot (scf); thousand standard cubic feet (mscf); billion standard cubic feet (bcf—one thousand millions); and trillion standard cubic feet (tcf—one million millions). (ii) Calorific value. Calorific values (see below) are measured using a number of different units. The usual Imperial unit for the measurement of the calorific value of gas is the British thermal unit (Btu) which can be defined as the amount of heat required to raise the temperature of one pound of pure water from 59°F to 60°F at an absolute pressure of 14.7 pounds per square inch (or as the amount of heat equal to 1,055.06 Joules), and this is typically measured in millions of Btus (mmBtus). A dekatherm is a term sometimes used to connote one million Btus. In the SI system gas calorific value is measured in Joules, also defined in ISO 1000:1992(E) and often scaled up to the mega Joule (MJ), meaning one million Joules, and the giga Joule (GJ), meaning one billion Joules. An alternative measurement sometimes used is to say that the Btu is an amount of heat equal to 1055.06 Joules. Other units used for the measurement of calorific value are the kilowatt hour (kWh) and the therm (th). A therm is a non-metric measure which is commonly used in the context of UK gas sales and which corresponds to 100,000 Btus. (iii) Pressure.

The usual Imperial unit for the measurement of gas pressure is the pound per square inch (or lbf/in 2 or psi). One psi equates to 144 pounds of pressure per square foot. The SI unit for gas pressure is the Pascal (Pa) or kilopascal (kPa) (also defined in ISO 1000:1992(E)), where one kPa is equal to 0.145 lbf/in 2 . Gas sales and transportation arrangements typically reference atmospheric pressure in various technical and operational provisions. Because atmospheric pressure varies with temperature and elevation above sea level, a particular contract might specify its own particular definition of atmospheric pressure.

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Gas Measurement Units, UKBC-GASLNGS 493298543 (2023)

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Gas Composition and Calorific Value, UKBC-GASLNGS 493298542 (2023)

Gas Composition and Calorific Value Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas Gas Composition and Calorific Value 1-008

A raw gas stream will have a particular chemical composition at the point of its production and may require processing prior to transportation or delivery in order to modify its constitution: (i) Impurities removal. The raw gas stream could be treated in order to remove any impurities, or at least to reduce those impurities to commercially and/or operationally acceptable levels. Non-hydrocarbon based components are generally undesirable within a gas stream. Water and carbon dioxide are corrosive to metals and water can freeze and obstruct the flow of gas through pipelines and other equipment. Hydrogen sulphide is highly corrosive and toxic. Nitrogen, whilst neither corrosive nor toxic, has no calorific value and will displace the calorific value of the gas stream. Mercury is particularly corrosive of aluminium and its alloys and solid particles could build up and obstruct the flow of gas through pipelines and other equipment. (ii) Liquids stripping. The interest of a gas producer in extracting hydrocarbon fractions heavier than methane prior to the delivery of gas to a buyer will depend on a combination of the extent to which those fractions are present in the raw gas stream, how their presence offends the agreed gas quality specification (21-002) and the opportunity for a gas producer to commercialise such extracted fractions. Liquids stripping can be an inherent part of the process of gas production where the raw gas stream is wet gas (see above). (iii) Calorific value modification. Where the calorific value of the raw gas stream is too rich or too lean (see below) then it may be necessary for blending (also called “spiking”) of the raw gas stream by introducing a heavier hydrocarbon fraction (such as propane) in order to enhance the calorific value or an inert component (such as nitrogen) to lower the calorific value. This modification process might also be applied to LNG at the point of unloading.

1-009

(iv) Various. Gas could be heated or cooled and could be odourised through the addition of an odourising agent. Calorific value (also called “thermal value” or “energy content”) defines how many units of heat output will be released when a given volume of gas (measured, for example, in standard cubic feet or cubic metres) is combusted. The determination of calorific values enables a straight line comparison to be made between different sources of gas, and also between a particular source of gas and another fuel source, and is necessary because greater or lesser calorific values for gas can result in correspondingly greater or lesser economic values for that gas, where, typically, higher calorific values could make the gas more valuable as a commodity, because of its proportionately higher thermal content—but possibly also only up to a point. Calorific values could be quoted as gross (or by reference to a higher heating value), meaning that any latent heat released by water vapour produced during combustion of the gas has been added into account in determining the calorific value of the gas,

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Gas Composition and Calorific Value, UKBC-GASLNGS 493298542 (2023)

or as net (or by reference to a lower heating value), meaning that any latent heat which is so released has been subtracted in determining the calorific value of the gas. The calorific value of gas will vary across the range of hydrocarbon fractions, with methane having the lowest calorific value (as lean gas) and progressively heavier fractions having progressively higher calorific values (as rich gas) as the molecular weight of the gas increases. Thus, where the net calorific value of methane is 909 Btu/scf, this figure increases progressively to give 1,631 Btu/scf for ethane, 2353 Btu/scf for propane and 3094 Btu/scf for butane. Gas which is required by a buyer as feedstock for combustion in a gas-fired power plant is typically bought by reference to its calorific value rather than by reference to volume, because the turbines through which the gas will be combusted will be designed to consume gas within a specified range of calorific values for the greatest operational efficiency. Consequently the calorific value of gas is more important to the buyer than the volume of gas which is delivered. Gas sales arrangements in this instance will dictate in the gas quality specification provisions a range of calorific values within which the buyer will require gas to be delivered. 1-010

The calorific value of a particular quantity of gas will be determined by the chemical composition of that gas. For pipeline gas deliveries, where gas is delivered to the buyer which per unit is of a lower calorific value, then, unless the calorific value of the gas stream can be increased by bringing in alternative supplies of richer gas or by blending in heavier hydrocarbon fractions with higher calorific values, a greater volume of gas will need to be delivered by a gas producer in order to maintain the aggregate calorific value of the quantity of gas which is nominated by the buyer for delivery. For example: DELIVERY NOMINATION FOR GAS (BTU)

CALORIFIC VALUE OF GAS (BTU/SCF)

EQUIVALENT GAS VOLUMES (SCF)

5 billion

1200

4.16 million

5 billion

1000

5 million

5 billion

800

6.25 million

A gas producer will need to bear this in mind in light of the physical constraints of its gas production and transportation infrastructure, which might have insufficient capacity to accommodate any greater volume of gas which is required. This inability to deliver the requisite quantity of gas by reference to calorific values could lead to a seller’s delivery failure (19-002). To protect a gas producer from the situation where a falling calorific value might necessitate (and so give rise to the impossibility of) the delivery of increasing physical volumes of gas, a sales contract could contain a provision to the effect that where over a specified period the average calorific value of delivered gas has fallen below a certain level then the gas delivery obligation will be adjusted correspondingly. 1-011

From a buyer’s perspective such a mechanism will mean a reduced gas delivery, which might be commercially or operationally unacceptable. The buyer might therefore require a gas producer to address the problem by taking such operational steps as may be needed to maintain the calorific value of the gas stream at the required level. Conversely, where the calorific value increases and there is a resultant reduction in the physical volume of gas which needs to be delivered to meet a buyer’s requirements, then this could lower the gas delivery profile to the point where there could be the risk of a shutdown in the gas delivery facilities. Thus, a sales contract might also contain a mechanism allowing a gas producer to curtail gas deliveries (without liability for a seller’s delivery failure) where this happens too. 3 In the delivery of LNG the essential determination of quantities will be calorific, although this must be read against the necessity to reconcile this determination with the volumetric LNG-carrying capacity of the LNG ships which are applied to the service

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Gas Composition and Calorific Value, UKBC-GASLNGS 493298542 (2023)

of the underlying sales contract. This will lead to reconciliation between the calorific value of the LNG and the capacity of the LNG ships.

Footnotes 3

See P-01.

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Gas Commercialisation Options, UKBC-GASLNGS 493298547 (2023)

Gas Commercialisation Options Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas Gas Commercialisation Options 1-012

There are a number of options for the commercialisation of a natural gas discovery, depending on where the gas is produced and what the proximate industrial opportunities are: (i) Commercialisation at the point of production. At the point of production gas could be combusted to generate electricity for sale (a gas to power (GTP) project), processed to manufacture petrochemicals (such as methanol and ammonia for fertiliser production) for sale, or processed to manufacture liquids for sale (a gas to liquids (GTL) project). (ii) Transportation from the point of production. At the point of production gas could be put into a pipeline and transported to another place for sale for domestic and industrial consumption, to be combusted to generate electricity, to be processed to manufacture petrochemicals, or to be processed to manufacture liquids. (iii) Processing to another form of gas. At the point of production gas could be separated out to give liquids for further shipping and sale as LPG. Dry gas could be compressed to give CNG for further shipping and sale, with the resultant CNG being decompressed for further use or consumption at the intended delivery point, or dry gas could be liquified to give LNG for further shipping and sale, with the resultant LNG being regasified for further use or consumption at the intended delivery point. Which commercialisation option is best for a gas producer, or which is at least the most feasible, will depend on a variety of economic, technical and regulatory factors. It might also be that some combination of the commercialisation options could be appropriate for a particular natural gas discovery and so, for example, a sizeable offshore gas discovery could be commercialised principally through an LNG export project but also with a proportion of the gas being made available to a local onshore market. End of Document

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Upstream Petroleum Granting Instruments and Gas, UKBC-GASLNGS 534049292 (2023)

Upstream Petroleum Granting Instruments and Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas Upstream Petroleum Granting Instruments and Gas 1-013

An upstream petroleum granting instrument (UPGI), which could be any of a licence, a production sharing contract, a service contract or a general concession, is typically intended to regulate the exploration for and the discovery, development and production of all grades of petroleum. That said, most forms of UPGI tend to be inclined more towards dealing with a crude oil discovery and say comparatively little about how to account for a gas discovery. 4 Rather, the treatment of gas is usually left to be further negotiated by the UPGI holder with the grantor of the UPGI in the event of a discovery, because of a relative lack of familiarity with the techniques for commercialising gas when compared with oil. 5 This lack of transparency could give the UPGI holder little or no incentive to invest in exploring for and producing gas.

1-014

The reluctance of the UPGI to deal with the possibility of a gas discovery in the same amount of detail as an oil discovery is attributable to the following problems which a gas discovery often presents: (i) The declaration of commerciality. The commerciality of an oil discovery can be evaluated relatively quickly because of oil’s relative ease of transportation and through the existence of comprehensive global trading terms and published trading prices for the resultant commodity. The commerciality of gas on the other hand might not be capable of being established until the prospects for the gas’s successful marketing (which could involve developing a comprehensive downstream marketing programme for domestic use and for exports) have been assessed. Oftentimes a firm contract for the sale and transportation of a discovered gas resource will be needed to allow the resource to be declared as commercial. Essentially, with oil production the postdiscovery sequence is a declaration of commerciality followed by contracts for sale; with gas production the reverse could be true, and this will entail a more time-consuming and less certain route towards monetising gas under the UPGI. (ii) Gas-specific provisions. When a gas discovery has been made it might also be necessary for the UPGI holder to develop further gas-specific provisions (including a possible revision to the fiscal terms to apply under the UPGI). This could lead to a lengthy period of negotiations with the grantor. Specific infrastructure for gas processing and transportation could also need to be developed, particularly in remote areas, which might necessitate amending the scope of the UPGI to include certain midstream development activities. (iii) Gas form distinctions. The UPGI might reserve a right of the UPGI holder to use discovered gas as fuel for production operations and for gas lift. The UPGI will commonly also distinguish between non-associated gas and associated gas discoveries. Both forms of discovery might be open to the prospect of a separate development plan by the UPGI holder, or the UPGI could provide that associated gas belongs to the state, so giving the UPGI holder little or no economic incentive to develop an associated gas discovery. The UPGI could also provide that any gas discovery (whether non-associated gas or associated gas) which the UPGI holder does not develop will be relinquished to the grantor. By this route the grantor could accumulate a number of gas discoveries, to the point where they could be consolidated for the benefit of a national gas company by the host state.

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Upstream Petroleum Granting Instruments and Gas, UKBC-GASLNGS 534049292 (2023)

1-015

Each of the above factors, whether taken alone or in any sort of combination, could give the UPGI holder an incentive to not find gas, or not to declare commerciality in respect of a gas discovery. To obviate this situation a more comprehensive gas provision in the UPGI could be required, 6 particularly where it is likely that the UPGI being awarded is in respect of gas-prone acreage. This will continue to grow in importance as the role of gas in the energy transition becomes further emphasised (8-001). Such a provision might address the following topics: (i) The exploration period. More time could be required in how the UPGI defines the exploration period to allow the UPGI holder to explore for gas, and to appraise a gas discovery. The UPGI might also provide for the allowance of sufficient time for the UPGI holder to assess the availability and the economic viability of domestic and export market projects for the produced gas, with consideration of the various conceptual options which exist for the development of a gas commercialisation project. (ii) Infrastructure costs. The UPGI could reflect the ability of the UPGI holder to develop (and to cost recover or to tax deduct the costs of) midstream infrastructure necessary to take discovered gas to market, and possibly also of downstream infrastructure to realise the commercial value of the gas, notwithstanding that such infrastructure could be physically located outside of the contract area of the UPGI, and that the development of such infrastructure could be outside the scope of the UPGI. (iii) Representatives. The UPGI might facilitate the establishment of a committee of representatives which is wider than the grantor and the UPGI holder, to include midstream and downstream sector specialists, in order to assess the steps which might be necessary to implement a successful domestic and/or export plan for a gas discovery. (iv) Gas commercialisation. The UPGI could include the establishment of outline commercial terms for the sale of gas to domestic buyers (and possibly also a gas pricing methodology). Beyond this, the UPGI holder could also require that a state gas master plan is put in place by the grantor to regulate the conditions for domestic and export gas project developments. (v) General costs. The UPGI holder might be offered any combination of enhanced cost recovery or tax deductibility provisions, modified royalty or taxation treatment, or improved profit share percentages in order to encourage the exploration for and the development of non-associated gas, reflective of the relatively greater uncertainty of undertaking a gas development project. Whether any of these improved fiscal terms should also apply to associated gas, where the UPGI holder might have the benefit of the associated crude oil production, revenues and cost recoveries, should be considered. The UPGI holder might also require that the costs of marketing the gas are made cost recoverable or tax deductible, which could be a departure from the customary approach of the UPGI. (vi) Gas management. Additional provisions could apply in respect of distinguishing the liftings of produced gas quantities in order to meet domestic market obligations under the UPGI, domestic gas commercialisation opportunities, and export gas commercialisation opportunities. There could also be some commentary about the treatment of natural gas liquids at the wellhead (and whether the natural gas liquids would be treated as natural gas or as crude oil for the purposes of the UPGI). (vii) Stabilisation. The UPGI could reflect a new or modified stabilisation provision which is intended to protect the UPGI holder in respect of the development or regulation of the domestic gas market in the state of the UPGI. (viii) State participation.

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Upstream Petroleum Granting Instruments and Gas, UKBC-GASLNGS 534049292 (2023)

The parameters of a general right of the state to participate in the UPGI as a UPGI holder could be modified in respect of state participation in a stand-alone gas production project (ix) Sale of state entitlements. The state could, as the grantor, have a right to take its produced gas entitlements under the UPGI in cash or in kind. The state could appoint a person to act as its agent to sell its entitlements and to account to the state for a share of the sales proceeds. This would represent the state taking its entitlements in cash. Alternatively, if the state wishes to take its entitlements in kind then the state could become a direct party to the GSA, as a seller in its own right. In either case the manner in which the state chooses to exercise its rights will be reflected in the GSA.

Footnotes 4 5 6

A point highlighted in a World Bank paper from 1995 (Mohsen Shirazi, “The Commercialization Process in Exploration and Production Agreements”, World Bank, November 1995, IEN Occasional Paper No.5). Whether condensate counts as a light oil or as a heavy gas could also be a grey area, which should also be legislated for in the UPGI. Tanzania, for example, has published a model addendum to its standard production sharing contract for natural gas developments.

End of Document

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The Problem with Gas, UKBC-GASLNGS 493298544 (2023)

The Problem with Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 1 - The Nature of Gas The Problem with Gas 1-016

Gas is an attractive fuel because of its advanced thermal efficiency, its relatively clean combustion characteristics and its plentiful supply. And yet an old (but sometimes still very relevant) piece of industry doggerel goes as follows: “you get your concession and then you drill. If you are lucky you find oil; if you are unlucky you find nothing; and if you are really unlucky you find gas”. What is the problem with gas which would support this negative view? There are several points to consider: (i) The management of gas. Oil has a high energy to volume ratio, and is a stable and relatively inert liquid which is easily stored and shipped in its ambient state. Compared to oil, gas is bulky and can be difficult to store and to transport. One thousand cubic metres of gas has approximately the same calorific value as one tonne of oil, but that one tonne of oil will occupy only one cubic metre. A given quantity of gas in its natural state would require one thousand times the storage volume that an energy equivalent volume of oil would require. The nature of gas will be reflected though (compared to oil) more complex operational arrangements and contracts for the sale, storage, processing and transportation of gas. (ii) Gas as a global commodity. Compared to oil, gas is much less homogenous and has to be contracted for sale on a specific basis. In contrast to oil there is no global gas price, and there is also little in the way of standard commodity sales terms. Also, oil is typically sold on a predominantly supply-side basis, whereas for gas it can be necessary to establish a demand market as a precursor to making a sale, with contracts which are careful to match up the supply and demand equation between a seller and a buyer. (iii) The role of the domestic market. Gas could be used to meet the needs of a hydrocarbon-producing country’s domestic market. Gas could be used as a substitute for the combustion of coal or oil products as a feedstock for power generation, offering a cleaner source of energy, and a switch to gas could offer an economic advantage where it allows domestically-produced oil products to be exported and to generate foreign currency receipts. This all has the attraction of offering a credible level of demand for a new gas project, but a gas producer could be reluctant to focus the development potential of a gas discovery on the returns to be made from selling gas into a domestic market, where domestic gas prices could be too low to generate an acceptable level of economic return and the risk of payment default could be unacceptably high. (iv) Achieving commerciality. The commerciality of an oil discovery can be evaluated relatively quickly, though a combination of the existence of comprehensive global trading terms and published prices for the resultant commodity. The commerciality of gas on the other hand might not be capable of being established until the prospects for the gas’s successful marketing (which could involve developing a comprehensive downstream marketing programme for domestic use and for exports) have been assessed. Oftentimes a firm contract for the sale of a discovered gas resource will be needed to allow the resource to be declared as

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The Problem with Gas, UKBC-GASLNGS 493298544 (2023)

commercial. Essentially, with oil production the post-discovery sequence is a declaration of commerciality followed by a contract for sale; with gas production the reverse is true, and this will be a more time consuming and less certain route.

1-017

(v) The concession basis. The issues which are associated with ensuring that the terms of an upstream petroleum granting instrument are adequate for the commercialisation of gas will often be an issue (1-015). The real value in gas depends upon where the gas is found. The final three issues noted above are risks which are particularly acute in relation to gas-immature economies which are also remote from gas consumption markets. The risk profile looks quite different where gas is found proximate to established infrastructure for gas transportation, processing or consumption, and that gas can be readily sold through a liquid market with established gas contracting protocols and a number of trading players. With gas (to a large extent in contrast with oil), “where is it?” is as much of a concern as “how much is there?” in any discovery and development programme. Even if a gas producer has the good fortune to be able to commercialise its gas through a mature market it will still be necessary to put in place the right forms of contract which match up the gas market demands of a buyer with the gas production, processing, storage and transportation constraints of the gas producer, reflective of the first two issues noted above. The purpose of this book is to identify and explain the critical components of those contracts. End of Document

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Introduction, UKBC-GASLNGS 493298553 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Introduction 2-001

Any project for the sale and transportation of gas (in whatever form the gas is to be transported—but principally as pipeline gas or as LNG) will require a consideration of the arrangements for the sale of the produced gas, for the transportation of that gas, for the ability of a person to access gas from other sources when needed and for the eventual receipt and consumption or onward transmission of the gas. End of Document

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The Sales Contract, UKBC-GASLNGS 493298555 (2023)

The Sales Contract Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures The Sales Contract 2-002

A contract for the sale of a quantity of gas or LNG will typically follow a particular form. A gas sales agreement (GSA) is the vehicle for the sale of gas which is transported by pipeline and by which raw gas (1-003) or regas (1-004) is bought and sold, but such gas could also be traded under a master sale and purchase agreement (MSPA, 6-004). Where the sale and purchase relates to LNG then the popular vernacular for the relevant contract is a sale and purchase agreement (SPA). Spot sales of LNG could also be effected through an MSPA, which will in content be broadly similar to an SPA. An overall gas commercialisation project could be made up of a portfolio of multiple GSAs and/or SPAs (or MSPAs) from a seller’s perspective, whether with one or with several buyers. Many of the terms of a GSA and an SPA will be much the same, although there will inevitably be some differences too in recognition of the differing characteristics of the underlying commodities, and the means of transportation of those commodities.

2-003

Despite the nomenclature which is popularly used to categorise the various forms of sales contract, it is an examination of the substance of the underlying arrangement which will be of greater importance. A sales contract is the primary means by which a seller can monetise its gas reserves and the seller will typically define its interests in monetising those reserves as a target revenue profile, with the sales contract being structured to most effectively realise this profile. Gas will be bought and sold on the basis of whatever arrangement best suits the operational and commercial requirements of a seller and a buyer.

2-004

A sales contract offers two things to a buyer. It is principally a contract for the exchange of commodities between the seller and the buyer, wherein the seller undertakes to make gas available to the buyer for delivery when required and the buyer agrees to pay money to the seller in return for that gas, but it is also the means by which a buyer accesses a delivery service for the availability of that gas, with the degree of flexibility in the provision of that service being determined by how the sales contract is drafted. A sales contract is as much about a delivery service as it is about the underlying commodity. End of Document

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Upstream and Downstream Risk Allocation, UKBC-GASLNGS 493298556 (2023)

Upstream and Downstream Risk Allocation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Upstream and Downstream Risk Allocation 2-005

The customary allocation of risk in a sales contract is that the seller assumes responsibility for the economic and operational risks associated with developing and completing the gas commercialisation project, such that gas is made available to the buyer (the upstream element), and that the buyer assumes responsibility for the commercial and regulatory risks associated with ensuring a sustainable market for that gas (the downstream element). In reality, however, the close implication of the seller/ buyer relationship means that these risks are borne by both parties to the sales contract; the non-availability of gas will obviously affect the buyer and the failure of the market will inevitably impact the seller.

2-006

The seller’s preference is generally to confine itself to upstream matters and not to become embroiled in the buyer’s downstream business, and the converse is true of the buyer. There is however inevitably some convergence between the two worlds, represented by the following examples (which by no means represent a comprehensive list of all such possible convergences): (i) Price risk and quantity risk. The conventional wisdom is that the seller takes the risk that the contract price (13-001) will be adequate for its needs and the buyer takes the risk that it can absorb the agreed quantities of gas. A blurring of these distinctions occurs when the seller has the right to alter the contract price which is payable by the buyer because of certain upstream events and the buyer has the right to modify its quantity commitments because of downstream demand changes. (ii) Force majeure risks. Events of force majeure (35-001) which impact the seller will invariably affect the performance of the sales contract against the buyer, and the converse is true for events impacting the buyer. This is particularly so if there is a termination right in the sales contract for prolonged force majeure (39-005). This convergence will only be disapplied if the sales contract imposes strict liability between the parties and dispenses with the possibility of force majeure relief but even then the practical reality is that the inability of one party to properly perform its contractual commitments will inevitably have a consequence for the other party. (iii) Upstream and downstream control. The parties to the sales contract could seek to reserve certain rights over each other’s project documents during the lifetime of the gas project (see below). (iv) Facilities. The sales contract could oblige the parties to construct, operate and maintain certain facilities (23-002). Under a typical facilities provision each party will have an interest in seeing the other party’s proper performance and could have reserved access and inspection rights in respect of the development and the ongoing operation of the other party’s facilities. (v) Affiliate sales.

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Upstream and Downstream Risk Allocation, UKBC-GASLNGS 493298556 (2023)

An affiliate sales contract (see below) represents something of a blurring of the economic interests between upstream and downstream. Thus, it is not as simple as saying that the seller has the upstream and the buyer has the downstream and never the twain shall meet. The challenge for a sales contract is to properly manage the inevitable interfaces. End of Document

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Transportation Options, UKBC-GASLNGS 493298550 (2023)

Transportation Options Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Transportation Options 2-007

No matter where raw gas is produced, whether offshore or onshore, that gas must be transported (in some form) to the ultimate delivery point, being the point where the gas is required. Often the greatest constraint in the commercialisation of global gas reserves is the distance between the location of the point of production of gas and the place where that gas is needed, since much of the available gas is simply in the wrong place and must be transported in order to realise its value (unless it is commercialised at the point of production—1-012). This necessity of transportation will add to the cost and complexity of any gas commercialisation project. The primary methods of transporting raw gas away from its point of production are by pipeline or in liquid form as LNG. Where gas is not transported directly by pipeline to the ultimate delivery point, but rather is delivered to an intermediate delivery point, then the secondary transportation of that gas could be effected by a further pipeline or by liquefaction of that gas to give LNG. The transportation of the resultant LNG will then be effected by ship to a point where the LNG is regasified and that regas is then taken on to the delivery point, typically by another pipeline:

2-008

The comparative economics of transporting gas by pipeline or as LNG by ship to an ultimate delivery point can effectively be summarised as follows: (i) Pipeline costs. The cost of constructing and laying a new pipeline is usually directly proportional to the length of that pipeline for any given pipeline diameter, and so the distance the pipeline needs to travel will be key. Offshore pipelines are generally more

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Transportation Options, UKBC-GASLNGS 493298550 (2023)

expensive to lay than onshore pipelines, except where difficult onshore terrain is encountered. Larger diameter pipelines and pipelines with compression facilities will be correspondingly more expensive. (ii) LNG costs. The capital costs of LNG project facilities are higher on an energy-to-volume basis than the capital costs of laying a pipeline, but only up to a certain point. That point is characterised by the distance that the gas needs to be transported to market, and over longer distances the economics of LNG facilities improve and eventually outperform pipeline economics. However, because of all the variables involved there is no single point of distance at which LNG projects economics transcend pipeline economics. These principles are necessarily generalised and are subject to particular project circumstances but they explain why across Europe, the US and within Southeast Asia gas is typically transported by pipeline, whereas the transportation of gas from the US, West Africa, the Middle East and Southeast Asia to North Asia and to Europe is in the form of LNG by ship. 2-009

Ongoing evolution in energy sector economics could see short-run LNG projects or long-run pipelines becoming increasingly prominent. In the context of LNG the emergence of small-scale and bulk-break LNG import projects also challenge the orthodoxy of LNG project economics. Small-scale LNG entails the deliberate development of a relatively small and highly flexible LNG regasification plant. Because of the smaller dimension of size, small-scale LNG projects present lower levels of total project cost (both capital cost and operating cost) and reduced project build times. In the bulk-break of LNG a single cargo is decomposed into a number of smaller cargo lots, for local shipping through smaller LNG ships or onward transportation by refrigerated trucks or railcars, so allowing LNG to penetrate into markets where large LNG ship access is not possible. Bulk-break projects are essentially small-scale, but small-scale projects do not necessarily have to apply all the components of bulk-break. Both sorts of project are characterised by short-run transportation distances, in direct competition with pipelines. Smaller LNG ships and smaller terminals are key, and terminals could indeed be bi-directional, with combined regasification and liquefaction facilities to allow for the re-loading of delivered LNG for export. End of Document

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Gas from Other Sources, UKBC-GASLNGS 493298554 (2023)

Gas from Other Sources Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Gas from Other Sources 2-010

“Flexible gas” is a term which is used to describe certain gas supply options which represent the ability of a party to a sales contract to access additional gas reserves when market conditions make it attractive to do so. Flexible gas options could be applied seasonally or in response to shorter term opportunities where flexibility can, ultimately, be measured by reference to daily or even hourly flexibility. Access to flexible gas assets by a buyer or a seller will have a key role to play in the structuring and the operational effectiveness of an overall gas commercialisation project. Flexible gas can be procured in several ways: (i) Linepack release. This option represents the ability to access pipeline linepack (28-008) for release into the market as demand dictates. The disadvantage of this option (depending on how a particular project is structured) is that the volumes and response times available might not be adequate to react to rapidly changing market conditions or sales contract demands. (ii) Peak-shaver production. This option represents a gas producer’s ability to increase production from its gas production resources in response to market movements where its gas production facilities are configured to do so. The disadvantage of this option to a gas producer is that a pure peak-shaver plant (without baseload gas production capability) has significant system downtime which can worsen its overall project economics. (iii) Interruptibles. This option represents a seller’s ability to apply rights to interrupt gas production which is contracted for sale to certain parties and instead to divert that interrupted production into the market or to another person. The disadvantage of this option is that interruption rights are generally not as reactive, nor as significant, as might be presumed. (iv) Gas storage. Gas could be withdrawn from a bespoke gas storage facility where necessary. This is considered in Ch.3.

2-011

(v) Substitute sources. A seller could supply gas to the buyer from sources of supply which are substitutes for the principal source. Substitution is properly intended to be an insurance of full performance by the seller and should give comfort to the buyer that gas will be supplied in satisfaction of its requirements, but the buyer will be less comforted where: (i) the seller’s substitution rights are indicative of poor reservoir performance from the intended principal source of gas supply; and/or (ii) the buyer incurs additional costs in the provision of the substitution gas, whether directly or indirectly through a greater contract price. Substitution gas should also not be of a lesser value than the gas which was originally intended to be supplied by the seller, and should not be outwith the quality specification in the sales contract (21-002). A critical issue for the seller in structuring an overall gas commercialisation project is to identify the ultimate source of supply of the gas which the seller intends to deliver to the buyer which could be subject to certain prohibitions in the sales contract

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Gas from Other Sources, UKBC-GASLNGS 493298554 (2023)

regarding supply from embargoed or sanctioned sources, the available transportation options for that gas and any risks associated with such transportation and any intermediate gas delivery options which the seller may be able to access in meeting its commitments to the buyer. These factors, once identified, will determine the seller-side flexibility which the seller can offer to the buyer and the level of liability which the seller will be comfortable in adopting (and the degree of relief from liability which the seller should seek to obtain) for its failure to deliver gas under the sales contract. Although the obvious source of gas for delivery by the seller to the buyer is the gas which is produced from the seller’s own equity reserves, the seller could also access gas which is stored after it has been produced by the seller or gas which is acquired from a third party (either directly or from storage). If the seller has access to upstream flexibility (e.g. through multiple gas production facilities or flexible assets or contract options) then the seller should be able to offer a greater degree of seller-side flexibility and should be more comfortable about accepting the risk of liability to the buyer for a failure to deliver gas. Conversely, if the seller has limited access to upstream flexibility then the seller will only be able to offer a relatively limited degree of seller-side flexibility and should be keen to preserve wider rights of relief for its failure to deliver gas. 2-012

The buyer’s required gas delivery profile could indicate steady baseload demand and the seller could engineer its gas production (and transportation) facilities and arrangements accordingly. The seller could prefer that the buyer takes gas regularly and on an even basis over time in order to ensure a greater efficiency of usage of the seller’s production (and transportation) facilities. Alternatively the buyer’s required delivery profile could fluctuate seasonally according to seasonal and climatic variations and daily depending on within-day peak loads. If this is so, the seller’s production and transportation facilities and arrangements will need to be able to respond to such seasonal and peak load demands and any resultant periods of redundancy. The buyer must identify what flexibility in the supply of gas downstream of the delivery point the buyer needs and can access. This will determine what flexibility the buyer could accommodate for itself and what the buyer will need to secure from the seller in the sales contract. The buyer should appreciate that any flexibility which it secures from the seller will ultimately have to be paid for under the sales contract. If the buyer’s demand for gas demonstrates little or no scope for fluctuation then the buyer may require little flexibility downstream of the delivery point. Conversely if the buyer requires some variability (e.g. the buyer requires raw gas or regas for consumption as feedstock for a power plant which modulates its generation loads in order to respond to power market demand fluctuations) then this variability could be accommodated through storage downstream of the delivery point (if it exists), or contract options, and the buyer might not need to secure (and to pay for) flexibility from the seller upstream of the delivery point. End of Document

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Overall Project Structuring, UKBC-GASLNGS 493298552 (2023)

Overall Project Structuring Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Overall Project Structuring 2-013

Contracts for the sale and transportation of gas will be at the heart of an overall gas commercialisation project and the parties to the project should make themselves aware of all the wider project issues which in turn might shape the terms of their particular contracts. The sales contract is the critical component for the seller in commercialising gas reserves and often the seller will not invest significant amounts in developing gas production (and transportation) infrastructure, or will not enter into ancillary transportation or processing arrangements, without having first executed an underpinning sales contract in order to secure access to the revenue stream which the sales contract entails. The execution of the sales contract could be made conditional upon other events as a precursor to its effectiveness (10-005). As part of the negotiation of the terms of a sales contract, a seller could be required to modify certain terms to better reflect the commercial purposes for which an intended buyer requires the gas which is to be delivered. Gas which is (for example) bought as a feedstock for power generation (whether on a base load or a peaking basis), as a feedstock for petrochemical or fertiliser production, for combustion in an industrial process such as steel making, or for reticulation for domestic consumption could in each case be subject to differing constructions relating (for example) to rates of delivery and flexibility of nominations, the quality specification, the seller’s liability for a failure to deliver and the price. The pricing model could also (at least in part) reflect the commercial value to the buyer of the product which results from the consumption of the gas. This could (for example) reflect the buyer’s revenues which result from the sale of power, petrochemicals or other commodities. A sales contract usually sits at the crossroads of a much wider upstream (exploration, production, processing and transportation of gas to the delivery point) to downstream (processing, consumption, transportation of gas from the delivery point and resale) project. The arrangements for gas sales (and sometimes also the arrangements for gas transportation to the delivery point) are often defined as the midstream component of an overall gas commercialisation project.

2-014

Whilst the matching of revenue receipts and payment obligations between the sales contract and the other project components will be essential, the matching of the wider commercial implications of the various project documents will be of vital importance too. The buyer will seek to correspond the terms of the sales contract with any downstream commitments which it may have. Where the buyer is buying gas as a feedstock for consumption for power generation then the buyer may also have a contract for the purchase of the power which it generates. In this instance the buyer will be keen to see the terms of the sales contract made back-to-back (to the greatest possible extent—although a complete reconciliation might not always be achievable) with the corresponding power purchase terms. If, for example, there is some disparity in the force majeure provisions between the two contracts then the buyer could find itself in a position where there is an event of force majeure claimed by the power purchaser which denies revenue to the buyer under the terms of the power purchase contract but which does not afford relief to the buyer from its obligations to make payment under the sales contract. On the other hand the buyer may have no ostensible downstream commitment to match the sales contract with. This could happen, for example, where the buyer is buying gas as a feedstock for petrochemical production where the resultant

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Overall Project Structuring, UKBC-GASLNGS 493298552 (2023)

petrochemical products are sold by the buyer into a spot market or where the buyer is generating power for sale into a competitive pool without a firm power purchase commitment. In these instances there are no onward terms for the buyer to match the sales contract with and so the only benchmark for the buyer is to ensure that the terms of the sales contract are as attractive as they can possibly be. The matching obligation will also require harmonisation of a GSA with a GTA (26-002), or an SPA with a charter party agreement (34-002), which has been entered into in order to transport gas or LNG to the delivery point (including addressing issues of effective start dates and the timing of obligations) and also potentially the matching of the sales contract with any other gas or LNG or regas sales arrangements which the seller or the buyer is party to. 2-015

Another particular distinction to note is that which applies between greenfield and brownfield gas projects and the resultant gas sales arrangements. A greenfield gas project represents a new project with the first-time supply of gas, and there will typically be a lengthy time lag between the execution of the relevant sales contract and the first delivery of gas whilst the underlying project is developed. Greenfield project arrangements could also see more emphasis on the use of conditions precedent (10-005), commissioning procedures (23-006) and late start liabilities (10-012) to protect the interests of the contracting parties. A brownfield gas sale is one which is made from an already established and producing project, where there will typically be less concern about operational performance. In order to underpin the launch of a greenfield project, a seller could sell its gas entitlements to its own affiliate (9-009) as the buyer, with that affiliate buyer then further marketing the gas. This establishes the affiliate buyer as an anchor customer of the gas commercialisation project, allowing sales revenues to flow and helping to prove the operational sustainability of the project. Despite the sale of gas to the seller’s affiliate as the buyer the terms of the sales contract will be (or at least should be) representative of an arm’s length transaction between the two parties, although the inescapable reality is that the parent company of both parties will have an indirect economic interest in both sides of the transaction. End of Document

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Wider Project Control, UKBC-GASLNGS 493298551 (2023)

Wider Project Control Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Wider Project Control 2-016

The rights and obligations of the seller and the buyer under a sales contract are separate and discrete but a feature which sometimes appears in gas commercialisation projects is a mechanism for each party to have some say in how the other party conducts its business. Despite the rights and remedies and the obligations and the liabilities which a sales contract creates there is no substitute for ensuring that the underlying gas commercialisation project remains sustainable for the lifetime of the sales contract and is not jeopardised by the activities of a particular party. A party may therefore take the view that it can best ensure this sustainability by exercising direct control over those of its counter-party’s commercial activities which may have an adverse bearing on the performability of the sales contract. The buyer could wish to secure some control over the operation of the seller’s upstream interests (e.g. documentary interests such as the seller’s concession and any joint operating arrangements, and physical interests such as gas production or transportation facilities), since a modification to the regime created by those documents or to the deliverability of gas from those facilities could potentially jeopardise the performance of the sales contract in a manner which will not be adequately compensated by whatever remedy the sales contract prescribes for the seller’s failure to deliver gas. Thus, for example, a buyer could require certain commitments from the seller not to oversell the underlying gas quantities.

2-017

Correspondingly the seller could be keen to secure some control over the operation of the buyer’s downstream interests (e.g. documentary interests such as the buyer’s contracts for the resale of gas to end-users (6-010) and any critical concession granted in favour of the buyer, and physical interests such as the gas reception and onward transmission facilities), since a modification to those documents or facilities could jeopardise the cash flow to the buyer and the buyer’s ability to meet its commitments under the sales contract. In the context of a sales contract the usual reaction of the buyer to a demand by the seller for control of the downstream end of a gas commercialisation project is a rejection of that demand on the basis that the seller has the comfort of the buyer’s take and pay or take or pay commitments (16-003, 16-004), and any collateral support which is given in respect of those commitments (15-002), which must be adequate to satisfy the seller’s revenue expectations. Correspondingly, if a buyer seeks to exercise upstream control then the seller will point towards the liability of the seller under the sales contract for a failure to deliver gas and will declare that this must be sufficient comfort to the buyer that the seller is incentivised not to jeopardise the flow of gas to the buyer.

2-018

Neither position will in reality offer much comfort, however, if the underlying gas commercialisation project collapses because of some fundamental economic, commercial or technical disruption affecting a party, and an arrangement between the parties as to the control of the overall project dynamics, beyond the strict parameters of the sales contract, might go some way to protecting against this risk. Such an arrangement could be contained in a provision in the sales contract 1 which obliges the maintenance in effect, and which prohibits the modification or transfer by a party of certain key contracts to which that party is a signatory or beneficiary or the modification of certain facilities without the prior consent of the other party (which consent could

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Wider Project Control, UKBC-GASLNGS 493298551 (2023)

only be withheld if any such proposed modifications or transfers would be detrimental to the legitimate commercial interests of that other party). It is also the case in structuring projects that, in the convergence of traditionally separated project interests, a party could seek to take a moderate equity stake in the other party’s side of the project so that the equity-holding party could (depending on the size and the structuring of the equity stake) have a say in, or could at least become better informed about, the running of that part of the project.

Footnotes 1

See P-02.

End of Document

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Gas/LNG Swaps, UKBC-GASLNGS 493298557 (2023)

Gas/LNG Swaps Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 2 - Project Structures Gas/LNG Swaps 2-019

Rather than contracting for the sale and purchase of gas, value could be realised between the parties through entry into a gas swap arrangement. If a gas market is characterised by falling trading margins a seller will need to work harder to generate continued profits and in some circumstances a gas swap, rather than a sale, could be more advantageous. Such a swap would be arranged and documented separately from a sales contract. Despite the name, a swap is not really so. Rather, it is a process by which two or more parties identify, pool and redistribute their respective gas delivery rights and obligations in order to capture certain economic efficiencies which they could then reallocate between themselves. A swap could be represented by several structural forms but will broadly fall into one of three categories (which, for the sake of simplified illustration, are shown below as bilateral trades but which could in reality involve multiple parties): (i) Financial swap. This occurs where two parties have entered into two separate and opposing gas trades which they agree to settle financially, by an offset arrangement, rather than by the physical delivery of gas. To obviate the need to make their respective deliveries the parties agree to cancel their obligations to each other (possibly also with a balancing cash payment from one party to the other to address any value difference between the trades). After the financial swap is concluded the net financial and physical position of the two parties should correspond to the positions which would exist if the physical transportation and delivery of the gas had taken place. (ii) Time swap. This occurs where a person which has contracted to sell or to buy gas at a particular point will exchange the timing of its obligation to deliver (in the case of a seller) or to take delivery of (in the case of a buyer) gas with another person which has similarly contracted, which could involve the deferral or the acceleration of those obligations to a rescheduled time which brings benefits to all of the related persons. (iii) Destination swap. This allows two persons to exchange their respective gas delivery commitments and so take advantage of the reduced transportation distances and costs which such a swap could effect. In respect of an LNG cargo delivery the following example illustrates the point:

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Gas/LNG Swaps, UKBC-GASLNGS 493298557 (2023)

2-020

In any proposed swap arrangement a number of factors will need to be considered: (i) Confidentiality. Depending upon how the confidentiality obligations entered into by each of the swap parties with their respective counterparties are worded, those provisions could prevent or could condition the ability of the swap parties to freely disclose their respective gas sales and delivery commitments to each other as a precursor to arranging a swap. (ii) Compatibility. In a swap of LNG cargoes, consideration will need to be given to ensuring the compatibility (and free exchangeability) of the intended LNG ships and the loading and unloading terminals, LNG quality specifications and LNG ship scheduling provisions between the swapped cargoes and the original cargo commitments. (iii) Risk allocation. The swap parties will need to reach agreement on allocating liability between themselves for any breach of the key elements in the original gas sales and delivery commitments, in particular in relation to late or non-performance or the delivery of off-specification gas. This could be achieved by cross-indemnities under the swap arrangement to ensure that each swap party is held harmless by the other for any losses arising from a breach of the original sales and delivery commitments. End of Document

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2

Introduction, UKBC-GASLNGS 534049296 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 3 - Gas Storage Introduction 3-001

The customary operational dynamic is that gas will be produced, sold, transported and consumed in response to prevailing market demands. It could be however that gas (which could be raw gas which is produced direct from a reservoir or regas which is delivered from regasified LNG) is not immediately consumed, but instead is injected into a gas storage facility (which could be onshore or offshore), to be redelivered at a later date when gas market demands dictate. This is the essence of gas storage (and consequently such gas is sometimes called “inventory gas”), which is a means of holding a gas inventory for release into an energy market when it is most needed.

3-002

Gas storage as it addressed in this Chapter is principally addressed towards the storage of methane, but the principles of gas storage as they are described could also apply equally in respect of the definition of a project for the storage of hydrogen (8-002). End of Document

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Gas Storage Options, UKBC-GASLNGS 534049295 (2023)

Gas Storage Options Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 3 - Gas Storage Gas Storage Options 3-003

Gas storage is a form of flexible gas supply which supports the ability of a gas supplier to meet gas demands on a daily, weekly, monthly or seasonal basis and can be invaluable in response to the challenges posed by supply constraints, adverse weather conditions, operational problems or geopolitical issues which might otherwise interrupt the free flow of gas into a market. As regional and even global energy markets become increasingly politicised, with energy flows potentially being used as a means of exerting political pressure and security of supply becoming a critical issue, the use of gas storage facilities could become a key element of effecting a reliable gas sale and transportation project.

3-004

LNG which is unloaded from an LNG ship at an unloading port can go into a purpose-built insulated storage tank (where it is kept at constant pressure by controlling boil-off gas escape from the tank), rather than proceeding straight to regasification, and can be later released from that storage and regasified when needed. The elasticity of the regasification process allows such LNG facilities to operate as balancing tools (capable of delivering gas in response to signals of high demand or low supply) in the same manner as other storage facilities. The residence time for such LNG storage is typically relatively short, which in part reflects the operational necessity of keeping LNG flowing through an import terminal. Gas can also be offtaken from a pipeline, liquefied into LNG and stored as such (with the attendant volume reduction from the gas liquefaction process which allows greater volumetric storage capacity) and then regasified and released back into the pipeline as gas when needed.

3-005

Gas can be stored against future use requirements in purpose-built steel or concrete above-ground gas storage tanks (sometimes called “gasometers” or “gas holders”). The gas is stored at atmospheric pressure and ambient temperature, and the volume of the storage tank is directly related to the quantity of stored gas since the storage tank typically has a moveable roof which goes up and down according to the quantity of gas in store. Gas held in a pipeline as linepack (28-008) is also essentially gas in storage, although the principal purpose of a pipeline is more commonly intended to be for the transportation of gas, rather than for use as a storage vessel.

3-006

The use of underground gas storage facilities is a particular feature to note. Three types of structure can be considered, where each structure possesses distinct physical and economic characteristics which determine its suitability for a given gas storage application: (i) Depleted hydrocarbon reservoirs. These are onshore or offshore reservoirs from which economically recoverable hydrocarbon reserves have been produced (subject to the retention of any cushion gas (see below)). The reservoir is readily capable of storing injected gas and using such a facility is economically attractive because it allows the re-use, with suitable modification, of the extraction and distribution infrastructure remaining from the productive life of the original hydrocarbon deposit, which reduces project start-up costs. Depleted hydrocarbon reservoirs are attractive because of their known porosity and permeability; their geological and physical characteristics have benefitted from previous study and so are already understood. In a depleted hydrocarbon reservoir a quantity of native gas in the reservoir could also be retained for use as cushion gas, unless native gas from the reservoir has been produced beyond the level of the required cushion gas volume, in which case the injection

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Gas Storage Options, UKBC-GASLNGS 534049295 (2023)

of cushion gas will be necessary prior to the commencement of storage operations. Consequently, depleted hydrocarbon reservoirs are generally the easiest of the various types of underground gas storage facility to develop. (ii) Salt caverns. These onshore or offshore structures are developed from discovered underground salt deposits. Once a salt deposit is discovered and found to be suitable for the development of a gas storage facility, a cavern is created within the salt deposit. This is done by the process of salt leaching or debrining, by which fresh water and fluids are pumped down a borehole into the salt deposit. The salt is dissolved in a controlled manner, leaving a void, and the salinated water is pumped back to the surface. The resultant void is a cavity which can be used for the storage of gas. Salt caverns are usually smaller in volume than depleted hydrocarbon reservoirs and consequently salt caverns cannot ordinarily hold the volumes of gas which are necessary to allow the redelivery of large gas volumes or for a long duration.

3-007

(iii) Aquifer reservoirs. These are underground porous and permeable rock formations which act as natural water reservoirs and which, in some cases, can be used for gas storage. The geological and physical characteristics of an aquifer reservoir are not generally known ahead of time and significant investment has to go into investigating these characteristics and evaluating the aquifer reservoir’s suitability for gas storage, and into developing above ground gas infrastructure, which can make for an expensive, time consuming and relatively uncertain project. The level of capital expenditure which is required to develop an underground gas storage facility depends on the physical characteristics of the proposed facility, with project costs being driven by factors such as size, accessibility (onshore or offshore), the drilling of wells, reservoir creation, and the installation of gas injection and redelivery equipment and pipelines. A salt cavern facility will generally be more expensive to develop than a depleted hydrocarbon reservoir facility as salt cavern facilities typically have to be developed without reliance on existing infrastructure. End of Document

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Storage Services Contracts, UKBC-GASLNGS 534049294 (2023)

Storage Services Contracts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 3 - Gas Storage Storage Services Contracts 3-008

A gas storage facility could be owned and operated by a person for its own commercial use, or the facility owner could allow a third party (as a facility user) to utilise all or part of the capacity within the facility. A gas market participant could purchase storage capacity for speculative or physical reasons. In addition to the arbitrage of gas price movements, the imperative to acquire storage capacity could be associated with exposure of a more physical nature, such as the insurance of contractual delivery obligations, the maintenance of pipeline pressure by transmission system operators, production profile levelling by gas producers, or more generally due to a lack of other sources of flexible gas (2-010) in a particular market. In many markets, gas storage is considered to be the most important flexibility tool for gas producers in supplying their customers. As a consequence, in many gas markets access to gas storage is an important prerequisite to being a successful market player. While storage is not the only tool offering flexibility, it can be one of the most important products. Access to storage could be key, and in this context, the issue of third party access arises (7-009).

3-009

A storage services contract (SSC) is a term used to describe an agreement which sets out the general terms upon which a facility user could purchase and make use of rights to inject, store, and withdraw gas from a facility. The SSC will be drafted to address and reflect the provisions of the laws and regulations governing facility access and to take into account the characteristics of the gas market in the jurisdiction to which the SSC relates. It is common for a facility owner to provide services to a facility user based on a standardised SSC, such that all facility users are contracted under identical terms (save for prices paid, quantities reserved and the applicable duration). As the intrinsic value (see below) of a storage facility has decreased, a willingness by some facility owners to permit a degree of departure from a standardised SSC has emerged in response to requests from facility users seeking to shape gas storage products to maximise values for their particular business models. Some gas markets have also seen some facility owners move away from historical asset-backed products to more innovative virtual storage products which are not tied to a particular a facility.

3-010

The initial transaction between the facility owner and the facility user will normally be for the sale and purchase of primary capacity rights, commonly referred to as “firm capacity”. The term “firm” denotes that the storage capacity is guaranteed to be available (subject to any permissible operational constraints or force majeure provisions which could be set out in the SSC). An alternative classification of storage capacity is that of secondary capacity rights, commonly known as interruptible capacity. The availability of interruptible capacity depends on the facility user’s nominations to use firm storage capacity and the technical capabilities of the facility at any given time. It is common for the facility owner to subject firm capacity to a use it or lose it protocol. Where firm capacity is unused, the facility owner could market such unused capacity to existing (and sometimes to prospective) facility users on an interruptible basis. Interruptible capacity is ordinarily used by the secondary purchaser until such times as the primary purchaser requires to use it, at which point the secondary purchaser’s use could be interrupted by the facility owner and the primary purchaser will commence use. Due to the inability to accurately predict a firm facility user’s future usage of its capacity, secondary interruptible capacity is typically sold on a shorter term basis than firm capacity, usually on a day ahead or a within day basis, and with a corresponding price discount in favour of the facility user. End of Document

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Gas Storage Facility Characteristics, UKBC-GASLNGS 534049293 (2023)

Gas Storage Facility Characteristics Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 3 - Gas Storage Gas Storage Facility Characteristics 3-011

As described above, a gas storage facility can take a number of physical forms, both natural and purpose-built, but the operational characteristics of all gas storage facilities are typically defined by reference to a common set of characteristics: (i) Cushion gas and working gas. The facility will contain a permanent gas inventory (called “cushion gas”, or “base gas”) which remains in the facility at all times, as an essential operational buffer between the hardware of the facility and those volumes of gas (called “working gas”) which are put into and taken out from the facility according to the needs of the facility user or the facility owner. A cost component which must be considered at the inception of any gas storage project is the cost of the cushion gas, which could be significant. High market gas prices mean high cushion gas prices, which can make project economics correspondingly less attractive. A high cushion gas price could also drive the expansion of current facilities, versus the development of new facilities, because expansions could require relatively little addition to the existing volumes of cushion gas. Cushion gas could be bought by a facility owner, as an item of capital expenditure. As an alternative, a facility owner could lease the cushion gas from a third party (which could be affiliated to or entirely unconnected with a facility owner) for the duration of the operational lifetime of the facility. In such a leasing arrangement, ownership of the cushion gas would remain with the lessor, and the facility owner, as the lessee, would make periodic rental payments to the lessor. (ii) Range. As a consequence of the disparate size and the nature of the structures used for gas storage facilities, different facilities can serve different purposes in a gas market. A facility could be configured to respond to seasonal variations in supply and demand and seasonal price variations, whereas another facility could be configured to respond more to short-term supply and demand volatility and associated shorter-term price variations. Two key characteristics determine the range of a gas storage facility: how much working gas can be injected, stored and then withdrawn from a particular facility; and the rate at which a particular facility can inject or withdraw gas. Whilst it is commonly accepted that underground gas storage can be classified as either long range, medium range or short range, there are no universally agreed characteristics or specifications which determine the exact parameters of these classifications. The UK gas regulator OFGEM uses certain definitions in its determinations which are based on the time taken by a facility to deliver all of its working gas volumes from full stock levels and at full withdrawal rates: (a) Long range storage (LRS) facilities. These are facilities which inject gas into storage during the summer months (typically where there is lower gas demand and so lower prices) and withdraw gas during the winter months (typically where there is higher gas demand and so higher prices). Given this seasonality in behaviour, LRS is also referred to as “seasonal storage”. LRS facilities can be classified as those which can take several months to deliver all of their working gas quantities. These facilities tend to be depleted hydrocarbon reservoirs or aquifers. (b) Medium range storage (MRS) facilities.

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Gas Storage Facility Characteristics, UKBC-GASLNGS 534049293 (2023)

These are facilities which inject and withdraw gas throughout the year in response to shorter-term supply and demand (and thus price) variations, typically in response to opportunities to inject when prices are lower and to withdraw gas when prices are higher. MRS facilities have shorter injection and withdrawal times than LRS facilities, with the capacity to deliver all of their working gas quantities over several days or weeks. These facilities tend to be salt caverns or smaller depleted hydrocarbon reservoirs. (c) Short range storage (SRS) facilities. These are facilities which have high rates of withdrawal, which are used to meet high gas demands for short periods of time. SRS facilities can be classified as those which have the capacity to deliver all of their working gas quantities over a few days. These facilities tend to be small salt caverns or LNG peak-shaving facilities, often located close to areas of high gas demand. If market economics are such that a facility owner, where the facility has a particular range, could realise greater value if it were to operate on a different range, it could be possible to reconfigure the operating characteristics of the facility to accommodate a different range. Additionally, an innovative facility owner could offer storage products with different ranges from a single facility. A halving of the rate of delivery for a particular storage product will double the duration of the product, which could free up delivery capacity for other facility users seeking higher delivery rates for shorter durations. (iii) Cycling. The period of time in which a facility has its entire working gas volume filled and then withdrawn is referred to as a “cycle”. The cycle rate represents the number of times in a given timeframe (usually annually) that a facility can be cycled. As certain gas markets lose their historically large seasonal price spreads, the cycle rate of a facility has become an increasingly important characteristic to enable market participants to capture shorter term gas price differentials. LRS typically has a cycle rate in the region of one to two times per year, although given its seasonal nature cycling rarely takes place more than once a year. MRS typically has the ability to perform several cycles each year and thus has a much higher cycle rate than LRS. SRS cycle rates vary in nature, depending on the configuration and structure of the facility. (iv) Injectability. This is the total volume of working gas which can be injected into the facility in a given period of time. It is also referred to as the “injection rate”. This is usually measured in volume or energy units per day. (v) Deliverability. This is the total volume of working gas which can be withdrawn from the facility in a given period of time. It is also referred to as the “deliverability rate” or the “withdrawal rate”. This is usually measured in volume or energy units per day. (vi) Duration. This is the time which it takes to withdraw the total quantity of working gas from the facility. (vii) Total gas capacity. This is the maximum volume of gas which can be held in the facility at any time (including cushion gas). (viii) Gas in store. This is the volume of working gas which is stored in the facility at a given time. (ix) Injection capacity. This is a measure of the rights pursuant to which a facility user can inject a volume of gas into the facility for storage. (x) Withdrawal capacity. This is a measure of the rights pursuant to which a facility user can withdraw a volume of gas in store.

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Gas Storage Facility Characteristics, UKBC-GASLNGS 534049293 (2023)

3-012

(xi) Space. This is a measure of the rights pursuant to which a facility user can store a volume of gas in a facility for a specified period of time. The price at which storage capacity is sold and purchased reflects the value of flexibility to facility users in the prevailing market. The fundamental commercial aim of a facility user is to purchase and inject gas into a facility for storage during periods of lower prices, and to hold it there until it can be returned to the market and sold at periods of higher prices, resulting in revenue which is in excess of the cost of purchase and use of the storage capacity and any applicable network charges. The price paid for storage capacity pursuant to an SSC will be defined by reference to the following characteristics: (i) Intrinsic value. This is a measure of the price differential based on the forward gas price curve which a facility user can capture by injecting gas and withdrawing gas at defined times. (ii) Extrinsic value. Storage flexibility generates extrinsic value as facility users optimise the use of their capacity in response to rapid changes in market conditions and prices (typically, injecting and withdrawing gas over short non-seasonal periods). The level of extrinsic value is a complex function of seasonal spreads, spot price volatility, forward spread volatility and asset flexibility. It also relates to the interaction between such market characteristics and the hedging and optimisation strategies utilised by the facility user. In addition to the charge for capacity, the facility owner could also charge the facility user a service fee for the injection and withdrawal of gas based on the quantities of gas injected or withdrawn. This is often referred to as a “commodity charge” and is connected to the cost of operating the injection and withdrawal equipment at the gas storage facility. End of Document

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Introduction, UKBC-GASLNGS 493298577 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales Introduction 4-001

Certain operational aspects of a sales contract will be different where the raw gas comes from an unconventional gas deposit. The objective of an unconventional gas commercialisation project is the same—to produce sufficient quantities of gas which can be sold at a sufficient profit—but the terms of the sales contract might need to be reconfigured in several places to reflect the operational peculiarities of an unconventional gas source in order to achieve that objective. The provisions of this chapter relate to the terms of a contract for the direct sale of gas from an unconventional deposit. They will not apply where unconventional gas is produced and consolidated, and is then sold as a generalised commodity. End of Document

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Unconventional Gas Production, UKBC-GASLNGS 493298574 (2023)

Unconventional Gas Production Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales Unconventional Gas Production 4-002

An unconventional gas development project will differ from its conventional project cousin in a number of ways. In the simplest construction, a conventional gas development project is represented by the drilling of a single exploration well, typically drilled vertically, albeit with the possibility of lateral (horizontal) deviations, that (if successful) is then appraised and worked over to become a development lead, and then a production well. Once gas production is underway inherent capillary pressure within the target gas reservoir will lead to the free flow of gas from the wellbore, and gas flow rates will ordinarily be characterised by a steady ramp up and a smooth plateau production profile, before an eventual decline phase and the permanent cessation of gas production. This process could be repeated across a number of wells, and a wider gas production project within which the development wells sit could be the subject of a phased programme of the tie-back of satellite development wells in order to maximise gas production. Gas production could also be shut-in for certain periods of time and later restored according to the commercial and operational needs of the parties. In contrast, an unconventional gas development project has several different operational aspects to note: (i) Gas liberation. The fissile material within which unconventional gas deposits like shale gas are located ordinarily have insufficient matrix permeability to allow the free migration of the captive gas into an incoming wellbore. The production of unconventional gas in commercial quantities requires significant manual manipulation in order to deliver the necessary permeability, through hydraulic fracturing of the fissile material and the injection of water under pressure, chemicals and proppants in order to liberate the captive gas. (ii) The drilling programme. Significant numbers of vertical wells within relatively condensed surface areas, and lengthy horizontal wellbores in order to access the captive gas within a particular stratum, are typically required. Conventional gas drilling is targeted to exploit reservoir high points near mature source rocks, whereas unconventional gas drilling exploits much wider, basin-focused depocentres. Horizontal drilling maximises the ratio of wellbore-to-gas surface area contact and allows greater quantities of unconventional gas to be exploited. Gas will then be produced at relatively low pressures from the multiple well sites. (iii) Gas production profiles. An unconventional gas project typically offers greater uncertainty as to how it will perform over time. Recovery rates are lower and depletion rates are faster than is the case for conventional gas deposits. Gas flow rates will be variable, as individual wellbores deplete and new wellbores are drilled, appraised and brought on-stream, and this will present a relatively up-and-down gas production profile across an entire programme, compared to the relatively steady production profile that typifies a conventional gas project. Neither can gas production be readily shut-in (for example, during times

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Unconventional Gas Production, UKBC-GASLNGS 493298574 (2023)

when gas market prices are depressed), because of the relatively greater difficulty of restoring gas production from multiple low pressure wells. End of Document

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Reserves Estimation and Commitment, UKBC-GASLNGS 493298576 (2023)

Reserves Estimation and Commitment Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales Reserves Estimation and Commitment 4-003

Reserves estimation techniques used in relation to conventional resources could be less readily capable of application to unconventional resources because of inherent variations in reservoir properties, although the 2018 update of the SPE PRMS (12-020) is stated to apply also to unconventional resources. For a sale of unconventional gas the seller could dedicate a defined deposit, in the manner of a depletion contract (6-005). The inevitable variability in the rates of production of gas from an unconventional gas deposit has to be addressed in the sales contract. The variable profile of the production of unconventional gas could make it difficult to engineer a conventional ramp up, plateau and ramp down profile. This could result in the support of a dedicated unconventional gas deposit by substitute sources of gas (whether unconventional or conventional), thereby giving the buyer the benefit of access to a quasi-portfolio approach in the manner of a supply contract. Such an approach favours a portfolio seller (6-010), which could access gas for supply from a number of sources. End of Document

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GSA Terms, UKBC-GASLNGS 493298573 (2023)

GSA Terms Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales GSA Terms 4-004

This section considers the terms of a contract for the commercialisation of unconventional gas by reference to an onshore gas deposit which is made the subject of a pipeline sales and transportation project. The further structural differences which are necessary to effect a sale of LNG from an unconventional gas deposit are considered at the end of this chapter. (i) The seller. An individual seller could have access to a single unconventional gas deposit which in itself is sufficient to meet the needs of a buyer under a GSA but some consolidation of sell-side quantities could be helpful in achieving a certain economy of scale. Unconventional gas production from a number of gas producers could be routed through a nominated seller which would act as an aggregator (6-010) in order to provide the certainty of gas supply which a buyer might require, or such gas production could be sold jointly or by multiple sellers (9-004). (ii) Term. The GSA will have a duration in the ordinary manner (10-002) but a seller should properly not be able to claim a right to terminate the GSA on the grounds that the production of unconventional gas has become uneconomic at any particular time. There will always be times in the exploitation of a particular unconventional gas deposit where that would be the case because of the very nature of the unconventional gas deposit’s production profile. If there is to be an economic termination right in the GSA in the seller’s favour then it will need to be set at a level which reflects a sustained period of uneconomic performance and/or more macro-economic factors. An aggregated sales structure (see above) also lessens the risk of gas production from an individual unconventional gas deposit being uneconomic to the extent it is untenable to a seller. (iii) Delivery. In the GSA the seller could reserve the right to interrupt the delivery of gas to the buyer, within certain parameters (11-014). Such a right of interruption is of commercial advantage to the seller where operational constraints prevent the seller from being able to deliver gas to the buyer, to be applied particularly where there is a likely prolonged disruption to the anticipated rate of unconventional gas production for which the seller would require some relief, where, for whatever reason, force majeure relief (see below) would not be forthcoming. Interruption rights could be used by a seller to obviate the vagaries of unconventional gas production, although the introduction of an aggregated sales structure (see above) could mitigate the need for the seller to rely upon an interruption right. (iv) Quantities. An early task which could apply to the buyer and the seller is to determine the overall quantity of gas which is to be sold under the GSA, the contract quantity (12-003). In an unconventional gas commercialisation project this could be difficult to estimate, given the variability of production and how unconventional gas reserves are estimated. Thus, a contract quantity could be a particular rarity in a GSA for the delivery of unconventional gas, and shorter-term measures of gas quantities could be the norm. The seller must ensure that the physical capabilities of its gas production and transportation facilities can accommodate the daily delivery of gas at the buyer’s required maximum daily contract quantity (12-012). This could

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GSA Terms, UKBC-GASLNGS 493298573 (2023)

require the seller to incur the expense of building additional delivery capacity into its gas production and transportation facilities which might periodically be redundant, but the seller could factor these redundancy costs into the contract price (see below). In the commercialisation of an unconventional gas deposit the seller will need to make a careful assessment of whether it is able to meet the buyer’s demands for the maximum daily contract quantity and for excess gas opportunities (12-014). This in turn will drive the seller’s decision to develop an unconventional gas deposit as a standalone interest or as part of an aggregated sales structure (see above). (v) The price. In a GSA for the sale of unconventional gas a buyer could argue for a relative reduction in the contract price (10-005), in reflection of the perceived uncertainties associated with the production of unconventional gas, including the application of interruption rights (see above). However, the sale of unconventional gas from an aggregated sales structure (see above) could go some way towards reducing those uncertainties and thus towards eliminating the buyer’s claim for a price discount. (vi) Take or pay, make up and carry forward. Unconventional gas could be sold on a purely merchant basis to a buyer—when the seller has unconventional gas production available it will declare that unconventional gas to be available (particularly where a seller’s nomination regime applies —18-003), the buyer will take delivery of the gas and will pay the seller the contract price for the gas quantities which the buyer so takes delivery of. This formulation could be insufficient for the seller, however, because of the unpredictability of revenue due to flow from the buyer which it represents, and so the seller could require a take and pay or a take or pay commitment from the buyer. The buyer’s future right to lift make up gas in the recovery of take and pay or take or pay payments could be difficult for the seller to satisfy, given the variable profile of unconventional gas production. There might also be times when, in respect of a defined period of time, the buyer wishes to take delivery of more quantities of gas than are represented by the corresponding take or pay quantity. This incremental gas quantity could be carried forward as a credit against future take or pay commitments (16-004). The challenge for the parties to a GSA is to ensure that the level of gas production from an unconventional gas deposit will be able to match the commitment and the flexibility which the take and pay or take or pay, make up gas and carry forward gas provisions together are intended to deliver. Once again, an aggregated sales structure (see above) presents advantages in this regard. (vii) Nominations. It is ordinarily the case in a GSA that the buyer will nominate the quantity of gas which it requires to have delivered to it in respect of each day, through a defined nomination mechanism in the GSA (18-002). Alternatively, it may be that the seller will declare the availability of gas to the buyer and the buyer will then be obliged to take delivery of that gas whenever it is available. This seller’s nomination regime could be applied to the production of unconventional gas, where the production of gas has a variable profile and predictability of output could be difficult to secure. It could also be the case under the GSA that the seller will be able to set a wide gas production pattern and within that pattern a conventional buyer’s nomination regime can be accommodated. This in turn could influence the seller’s decision to develop an unconventional gas deposit as a standalone interest or as part of an aggregated sales structure (see above). (viii) Facilities. The definition of the required facilities could be relatively extensive for an unconventional gas project. In further support of an aggregated sales structure (see above) the exploitation of an unconventional gas deposit could see the resultant gas gathered by a series of pipelines over a relatively wide geographic area and combined into a single export pipeline which a seller has built as a consolidated point of exit from several unconventional gas deposits. This would require the construction of a gas gathering system across a series of unconventional gas deposits, which could lend itself to a joint development programme between multiple unconventional gas producers. (ix) Force majeure. A GSA will usually identify a series of events or circumstances which can legitimately be claimed by a party as force majeure, in order to afford relief to the affected party from a liability which would otherwise apply for a failure to perform

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GSA Terms, UKBC-GASLNGS 493298573 (2023)

its contractual obligations (35-001). Since the primary obligation of the seller under the GSA is to deliver quantities of gas which meet the buyer’s nominated requirements and the gas quality specification, the seller’s principal interest is in securing the availability of force majeure relief for liabilities under the GSA for gas delivery failure or for the delivery of off-specification gas. The production profile of gas from an unconventional gas deposit could make it difficult for the seller to sustain a claim for force majeure in respect of disruptions to gas production because periodic reservoir failure (through depletion) is an ongoing and inevitable feature of unconventional gas production. The use of an aggregated sales structure (see above) could reduce instances of force majeure to be claimed by the seller because of the seller’s ability to modulate gas production across a wider set of supply sources. End of Document

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Selling Gas or Power, UKBC-GASLNGS 493298575 (2023)

Selling Gas or Power Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales Selling Gas or Power 4-005

As an alternative to selling gas, an unconventional gas producer could decide to build its own captive power generation facilities at the point of production of the gas and could instead export the produced electricity onto the grid for sale, assuming that the necessary grid connection can be secured. Such a model has been used in the UK for the commercialisation of localised coal mine methane and coal bed methane deposits. This gas production is subject to periods of unavailability which makes it insufficient to serve as the sole base load source of gas supply to a conventional power plant, and therefore the key to the commercialisation of such unconventional gas has been localised small-scale power generation. This is particularly relevant to an electricity sales market where attractive premiums could be paid for the supply and availability of standby generation during times of peak power demand. The production of unconventional gas could be modulated such that the gas producer can optimise the use of unconventional gas and other sources of gas, or other fuel sources, if dual-fuel options can be structured, for power generation. A further benefit of such small and medium-scale flexible power generation is that, in comparison to a conventional power station, it can be made portable. When the gas production profile from a particular unconventional gas deposit has become such that it is no longer economically efficient to produce unconventional gas, the gas producer could relocate the power generation equipment to another unconventional gas deposit to generate electricity. End of Document

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LNG Sales, UKBC-GASLNGS 493298578 (2023)

LNG Sales Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales LNG Sales 4-006

Some LNG export projects are founded on the liquefaction of gas which has been drawn from unconventional sources of production. The characteristics of unconventional gas, particularly in relation to the determination of the gas production profile as described previously in this chapter, will be felt more obviously where produced unconventional gas is immediately sold under a GSA, and will be less apparent in the sale of LNG because the unconventional gas will have been produced, accumulated, liquefied and put into storage prior to sale and transportation as LNG. On the other hand, issues relating to facilities performance, reservoir depletion and the availability of force majeure relief will remain. End of Document

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Unconventional Gas Consequences, UKBC-GASLNGS 534049297 (2023)

Unconventional Gas Consequences Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 4 - Unconventional Gas Sales Unconventional Gas Consequences 4-007

In some instances gas which is sold from an unconventional deposit, or LNG which is produced for sale from gas which was produced from an unconventional deposit, could be the subject of a relative price discount in order to reflect a perception that it is the result of an environmentally damaging process. Reconciling such gas or LNG with a requirement for compliance with environmental, social and governance provision in a sales contract (41-011) could also be a challenge. End of Document

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Introduction, UKBC-GASLNGS 493298559 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Introduction 5-001

Aside from the form of the contracts which they elect to use for their gas sales and transportation arrangements, the parties to a gas commercialisation project should also consider carefully the philosophy and the negotiation process which will underpin how they will contract for the sale and transportation of gas. As part of this process the parties might use a memorandum of understanding, possibly including a lock-out provision, as a step on the road to the finalisation of the intended contract. The freedom of the parties to contract as they see fit in order to meet their commercial requirements could also be constrained by several external factors. End of Document

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The Negotiation Philosophy, UKBC-GASLNGS 493298560 (2023)

The Negotiation Philosophy Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process The Negotiation Philosophy 5-002

The relative difficulty of storing and transporting gas (compared to oil—1-016) means that gas is more typically produced in order to meet demand in a specifically created or identified market. Reflective of this, gas is often sold and transported under bespoke contractual arrangements which match up the abilities and expectations of the parties. In negotiating and structuring the commercial terms of a gas sales or transportation contract the parties to the relevant contract will each seek to secure the best package of commercial terms that they are able to. Not surprisingly, different parties will have different aspirations in relation to the components which typically constitute the contract. In the course of a negotiation some compromise will be required and the parties must accept that they will not achieve all of their commercial desires. Even if they could, an obviously one-sided contract is unlikely to be sustainable over the long term. Whether the parties to a particular contract have competitive options (e.g. to sell gas to, or to purchase gas from, another person or to have gas transported by, or to transport gas for, another person) will also condition the negotiation of the contract, since the availability of credible commercial alternatives will shape the willingness or the desperation of the parties to contract with each other.

5-003

In a long-term sales contract the seller’s primary aim is to put in place a stable and enduring contract by which the seller will sell gas and will recover an acceptable level of revenue on a frequent basis, with manageable delivery commitments and limited liability for a failure to perform its obligations. Apart from securing an acceptable contract price (13-001), the seller will require the sales contract to remain in place for the duration of an anticipated basic term (10-002) with little or no scope for undue termination (39-005) or any temporary or permanent variation to the commercial bargain which a sales contract creates. The seller will (ideally) require the following elements to be in place: (i) Frequent payment by the buyer. The seller will wish to promote regular payment from the buyer. This could be achieved, at least in part, by establishing a take and pay obligation (16-003) with a frequent invoicing cycle (20-002) or a shorter-term take or pay commitment (16-004). (ii) Manageable deliverability. In a GSA the seller’s preference will be to maintain a gas delivery capacity (11-010) and a regime for meeting nominations and requests for variations to nominations (18-002, 18-008) which the seller is able to sustain and the seller will also require the comfort of some protection against the buyer’s undertake or overtake of gas (18-010, 18-013); in an SPA these preferences will be determined by reference to the manageability of the scheduled LNG delivery requirements (33-007, 33-009). (iii) Limited liability for failure. The seller will want wide force majeure relief (35-001) and clearly defined tests and limitations of liability for a failure to deliver gas when required to do so (19-002) or for delivering gas which fails to meet the required quality specification (21-008).

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The Negotiation Philosophy, UKBC-GASLNGS 493298560 (2023)

5-004

The buyer’s agenda is to ensure a flexible form of contract which is economically attractive and which reserves dependable delivery capacity but which also affords the freedom to take delivery or not of gas whenever the buyer needs to. The buyer will also wish to ensure that any loss or liability suffered by the buyer for a failure of the seller to perform its obligations will be fully compensated for by the seller. Apart from securing an acceptable contract price, the buyer will seek to structure a sales contract on the basis of: (i) Long-term and short-term deliverability. The buyer will wish to ensure that the deliverability of gas can be tailored to respond to the buyer’s operational needs, such as through a flexible take or pay commitment and unrestricted make up rights (17-002). In the shorter term the buyer will also wish to ensure that under a GSA the seller provides the necessary gas delivery capacity and that the seller undertakes a regime for meeting nominations and requests for variations to nominations which meets the buyer’s day-to-day operational requirements, with limited exposure of the buyer to the need to rely on excess gas (12-014) or to penalisation for the undertake or the overtake of gas. Similar principles will apply to the frequent, flexible scheduling of LNG deliveries. (ii) Meaningful liability for failure. The buyer will require that where the seller fails to deliver gas when required to do so, or delivers gas which fails to meet the required quality specification, the seller will be fully liable to compensate the buyer for any loss or liability which the buyer suffers in consequence of the seller’s failure. (iii) Flexibility. The buyer will require the sales contract to reserve options for accommodating change as changing economic circumstances impact the buyer over the term of the contract, such as flexible pricing, volume flexibility and wider material adverse change provisions. Between the requirements of the seller and the buyer lies the basis of the transaction which will be represented by the sales contract. The parties will determine the parameters of the sales contract by reference to the risks that they are each prepared to take, and the commercial terms which they are each prepared to offer and accept. Furthermore, whichever party to the sales contract has assumed responsibility for the transportation of gas to the delivery point will require that the sales contract reflects the necessary interface with the gas transportation arrangements.

5-005

A sales contract could be the product of negotiation between the parties, without any (or any significant) reliance on the terms of a model form contract (6-002). On the other hand a sales contract could be an amalgamation of terms from a number of different sales contracts. The parties could be guided by the terms of a previous sales contract which they have entered into between themselves or with other persons, which could have a powerfully persuasive precedent value. Most sophisticated sellers and buyers of gas use their own preferred forms of sales contract, which they could regard as being an essential precedent for the commercial relationships which they enter into. 1 It may be that gas is sold to, or by, or is transported by, a state entity which holds a monopoly over certain parts of the particular energy sector and that such an entity would expect to buy or sell or transport gas on the terms which it dictates. Contract negotiations with such an entity could be peremptory and somewhat one-sided. However, sales and transportation arrangements involving such entities are increasingly the subject of properly negotiated contracts, in part at least due to energy sector deregulation and increased opportunities for private sector participation in the development of energy infrastructure and markets.

Footnotes

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The Negotiation Philosophy, UKBC-GASLNGS 493298560 (2023)

1

An historical example of this is the so-called “Principal Agreement”. This is a form of depletion-based gas sales contract (see below) which was used in the UK to regulate the sales of gas from offshore gas producers to the monopoly buyer, British Gas, throughout the 1970s and the 1980s.

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Memoranda of Understanding, UKBC-GASLNGS 493298565 (2023)

Memoranda of Understanding Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Memoranda of Understanding 5-006

In the process of negotiation of the arrangements for the sale or transportation of gas the parties might decide to conclude some form of memorandum of understanding (MOU) as an interim step towards achieving execution of a particular contract. An MOU is often entered into ahead of a fully-termed contract in order to secure the early commitment of the parties to the proposed transaction, with an undertaking of those parties to move towards the agreement of the fully-termed contract in accordance with the principles for negotiation and the outline commercial terms which are set out in the MOU. An MOU could alternatively be described as a letter of intent (LOI), a heads of agreement (HOA), a letter of understanding (LOU) and so on. There is no magic in any of this nomenclature. The critical issue to address in whatever manner the document is titled is its content, its legal effect and the prospects for achieving a further and final agreement between the parties.

5-007

The MOU could give the parties some comfort that they are at least partially committed to each other, sometimes to the exclusion of other prospective commercial counterparties, and will often contain a binding obligation of confidentiality (41-003) between the parties for at least the duration of the MOU. Where the parties do decide to have an MOU, as a precursor to the determination of a fully-termed contract, the critical issues to address are the extent to which the MOU creates a compellable legal obligation between the parties to further negotiate the fullytermed contract, and whether the MOU could be said to have created a legally binding and enforceable independent contract between the parties in its own right, irrespective of a further fully-termed contract coming into existence. An MOU might provide little in the way of detailed terms for the required sales or transportation arrangements and might simply be an agreement between the parties to negotiate, possibly in good faith, and possibly using reasonable endeavours (41-020), a particular contract on such terms as the parties will agree in due course, possibly within an agreed time frame. Alternatively, an MOU could take the form of a brief but relatively detailed outline agreement between the parties on the essential matters of principle relating to the particular contract (e.g. in a term sheet attached to the MOU), with other matters left incomplete and to be settled subsequently in the fully-termed contract, which would then supersede the MOU.

5-008

The obligation of the parties to further negotiate a fully-termed contract could take one of several forms. It could be a bare obligation (that is, a recital in the MOU that “the parties shall negotiate”). Alternatively, the obligation to negotiate may require the use of reasonable endeavours, or best endeavours, by the parties (41-020). The strength of these obligations, and in particular the extent to which they each create legally enforceable commitments between the parties, differs in each case, and according to the governing law of the MOU. Under English law it is generally recognised that a bare obligation to negotiate will be unenforceable. 2 An obligation to negotiate in good faith could be expressed in a contract, but such an obligation may in certain circumstances also be implied. English law does not generally recognise the implication of a general principle that a party to a contract must act in good faith in the performance of a contract, despite some occasional argument that English law should do more to embrace a doctrine of contractual fairness. 3 The refusal of English law to permit such a doctrine is founded essentially upon a preference for enforcing the expressly agreed terms of a contract over allowing an undefined discretion not to do so, because of the uncertainty which such a change of emphasis would introduce. The established approach has been called into question, 4

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Memoranda of Understanding, UKBC-GASLNGS 493298565 (2023)

where a court has suggested that there may indeed be circumstances where a contractual obligation to negotiate in good faith is enforceable between the parties in the event of a failure to do so. 5-009

An MOU might provide that a legally binding contractual relationship between the parties for the sale or the transportation of gas will not come into force until a fully-termed contract is executed and such a clear statement of an intended lack of legal effect will ordinarily be difficult to rebut. Alternatively an MOU might provide that even if a fully-termed contract is not subsequently executed the MOU in itself will constitute an enforceable contract which will bind the parties for the sale or the transportation of gas. Whether in this latter case the MOU will be sufficient to constitute a binding contract between the parties in its own right will depend upon whether the parties clearly intended to be bound despite the absence of the planned further contract. It will not be fatal to the prospects of success of the MOU in these circumstances merely because a further contract is required but is not forthcoming, but an assessment will be required as to whether the MOU is on its terms adequate or is too vague or uncertain to be enforceable as a continuing contract in its own right. This will be a question of fact to be determined by an examination of the terms of the MOU. Whether or not to have an MOU depends on the circumstances of the particular gas commercialisation project and how the relevant persons are likely to behave. It might be possible to agree a brief summary of the key commercial terms and a framework for the negotiation of a fully-termed contract to reflect that summary, or it might be better to simply get on with the detailed negotiation of a fully-termed contract. In practice it often turns out to be the case that so much time is devoted to arguing about the terms of the MOU that the principal advantage of the MOU, in that it enables the grind of a detailed negotiation to be deferred in favour of getting an early commercial commitment between the parties, is lost.

5-010

An issue which sometimes arises when relying on an MOU is that when the parties subsequently proceed to a detailed documentation of the principles which they believe to be agreed, the shorthand which was previously inserted in the MOU is either too vague to be meaningfully understood or is in hindsight regarded by a party as being unduly prejudicial to that party’s position in certain respects, whereupon the parties will begin to dispute the original issues afresh. In these circumstances it might have been better for the parties to have progressed directly to the negotiation of the fully-termed contract.

Footnotes 2 3 4

Courtney & Fairbank Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 W.L.R. 297 CA (Civ Div), Phillips Petroleum Co UK Ltd v Enron (Europe) Ltd [1997] C.L.C. 329 CA (Civ Div). Interfoto Picture Library Ltd v Stilletto Visual Programmes Ltd [1989] Q.B. 433. Petromec Inc v Petroleo Brasiliero SA Petrobras (No 4) [2006] EWCA Civ 1038,Knatchbull-Hugessen v SISU Capital Ltd [2014] EWHC 1194 (QB) and Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC); 161 Con. L.R. 71.

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Lock-In and Lock-Out Agreements, UKBC-GASLNGS 493298558 (2023)

Lock-In and Lock-Out Agreements Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Lock-In and Lock-Out Agreements 5-011

An MOU might also be expressed to be, or might imply certain of the characteristics of, what is called a “lock-out agreement” or a “lock-in agreement”, in the interests of applying some exclusivity between the parties for a limited period of time. A lock-out agreement is essentially a negative agreement in which one or both parties agrees not to deal with any other party regarding the agreed subject matter of the contract which is to be negotiated, at least for a certain period of time. This is helpful for a party which wants a degree of certainty that a deal will proceed before it incurs further time and effort. This form of agreement in principle creates an enforceable covenant, 5 provided that the commitment is sufficiently certain and is stated to exist for a specified period. Sometimes, however, the negotiating parties will enter into an agreement which is simply a positive commitment whereby they agree to negotiate exclusively with each other. Such an agreement, often called a “lock-in agreement”, is effectively an agreement to negotiate and it runs the risk of being declared to be unenforceable because it is too uncertain to have any binding force. It should also be noted that where, for example, a prospective buyer of gas has several competing prospective sellers then as a matter of commercial reality the buyer could be unlikely to wish to make any commitments as to the exclusivity of negotiations with any one of those sellers and might prefer instead to encourage several competing, simultaneous negotiations in the interests of securing the best deal. A similar position could apply equally (depending on the particular circumstances) to any seller, shipper or transporter. Consequently, no form of exclusivity might be forthcoming.

Footnotes 5

Walford v Miles [1992] 2 A.C. 128; [1992] 2 W.L.R. 174 HL, Radiant Shipping Co Ltd v Sea Containers Ltd [1995] C.L.C. 976 QB (Comm).

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Pricing Change, UKBC-GASLNGS 493298562 (2023)

Pricing Change Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Pricing Change 5-012

Many commentators refer to a sales contract as containing price or non-price provisions, notwithstanding that on a per-page basis the pricing provisions in a sales contract (Ch.13) typically make up only a small percentage of the total content of the sales contract. This seeming imbalance is understandable, however, since without a sustainable agreement between the parties on price the rest of their intended sales contract will be of negligible value. The contract price, as the price which is agreed in the sales contract to be payable by the buyer to the seller, will often have a significant bearing on the negotiability of other commercial terms in the sales contract, and the same principle applies in a GTA in respect of the tariff and/or capacity payments payable by the shipper (29-002) and in a charter party agreement with respect to the hire rate (34-006). In theory at least, if a relatively high contract price is payable by a buyer then a seller should be amenable to offering improved commercial terms in other areas. A discounted contract price might be payable by a buyer to reflect the advantage to a seller of securing a significantly de-risked (that is, a more beneficial) form of sales contract. Correspondingly, a low contract price could inhibit the availability of better commercial terms elsewhere. A sales contract could also describe different portions of gas as having different pricing proportions (with those portions of gas being risked or de-risked accordingly), all within the confines of a single overall contract for the sale of gas. Whilst the contract price is often the pivotal point for the availability of other commercial terms there is a risk to the prospects for successfully negotiating the terms of a sales or a transportation contract where the parties become too focused upon maintaining a linkage with the issue of the contract price. Not all commercial issues can readily be quantified by reference to price. It may be difficult to provide a meaningful equation of the concession of a particular commercial point to any change in price and an obsession with pricing the value of all non-price commercial terms could ultimately derail the process of negotiation. End of Document

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Bankability, UKBC-GASLNGS 493298561 (2023)

Bankability Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Bankability 5-013

A party to a project for the sale and/or transportation of gas might seek to fund the costs of the development of any facilities which that party is obliged to install (23-002) by recourse to the provision of debt from third party lenders on a project-specific basis. Any lenders to such a party would be obliged to recover their advances solely (or at least primarily) from the revenue stream generated by the project and typically would have no, or very limited, recourse to the borrowing party’s non-project assets. This, in essence, is project financing and where the development of such facilities is funded on this basis the lenders will of necessity have a very keen interest in ensuring that all of the relevant gas commercialisation project contracts are founded on the soundest possible legal, commercial, technical, economic and operational principles, such that the overall project will have the greatest chance of success and the lenders’ interests are best protected. The lenders will therefore make an assessment of whether the project contracts are (in financing parlance) “bankable”. Where a seller is developing new gas production infrastructure in order to meet its commitments under a sales contract and is seeking to fund the development of that infrastructure by recourse to third party lenders which relies on the expected revenue stream from the buyer under the sales contract, a determination of the bankability of the sales contract by the lenders will take place as part of a wider determination of whether the gas commercialisation project as a whole forms an acceptable credit risk.

5-014

Where a party is developing upstream gas production facilities and a pipeline for the transportation of gas then all of this infrastructure could be developed and financed in a single exercise (with the pipeline being regarded as a natural extension of the upstream facilities). Alternatively, a pipeline could be financed in its own right, which could lead to competition to secure funds and more than one review of bankability. Similar provisions will apply in the context of separating all of the various components of an overall LNG supply project (31-002). In assessing the bankability of the various project contracts the lenders will analyse all of the risks associated with the sale and transportation of gas, and how those risks are allocated or mitigated, before concluding whether they are ready to lend to the project and the extent to which they may require some form of support or security from the borrower as a condition of their lending. Ultimately the lenders’ requirements in ensuring bankability could condition some of the terms of the relevant sales or transportation contracts. The lenders’ requirements should be synonymous with the interests of the seller under the sales contract, although the lenders’ analysis is typically more conservative, partially to reflect that their expectation of a return from the project is debt-based rather than being the greater level of return which is expected by an equity participant.

5-015

It may also be that the buyer under a sales contract is looking to finance the development of any gas reception, consumption or onward transportation facilities with the assistance of third party lenders, based upon the anticipated revenue stream from the consumption or resale of gas or regas. In this instance the lenders to the buyer will carry out their own review of the bankability of the project documents and their requirements could well be at odds with the requirements of the lenders to the seller-side of the project. The primary focus of this book is not upon the techniques for the financing of gas commercialisation projects but there are three process issues which should be appreciated by the parties to a project which requires such financing:

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Bankability, UKBC-GASLNGS 493298561 (2023)

(i) Eliminating the pursuit of perfection. Ensuring the ultimate bankability of the relevant sales or transportation contracts can imply the pursuit of perfection. Since in the negotiation of the sales contract the buyer will not concede every point in the seller’s favour, in assessing the bankability of the relevant contract the lenders will need to recognise the reality that some give and take on the commercial terms will be essential in the negotiation of contracts which are workable between the parties. (ii) Financing the whole project. Multiple lenders to different parts of an overall gas commercialisation project may need to balance their potentially competing interests by looking at the project holistically. This issue may abate where a single lender or lender group has assumed responsibility for financing all of the various project components. (iii) Accommodating lenders’ interests. Given the need to accommodate (and sometimes to reign in) the requirements of the lenders it would be prudent for the parties to the relevant contracts to involve their lenders early on in the process of settling the commercial terms for gas sales and transportation. This would be preferable to involving the lenders at the end of the process and thereby running the risk that the lenders will require previously-agreed commercial positions in the various project contracts to be reopened in the protection of their own particular interests. End of Document

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Choice of Law, UKBC-GASLNGS 493298563 (2023)

Choice of Law Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Choice of Law 5-016

The effective content of a gas sales or transportation contract will also in part be determined by the application of the selected governing law of the relevant contract (41-013). The applicable law could condition certain terms of a contract, and this could be so despite the intention of the parties to the contrary. The parties to a contract which is expressed to be governed by a common law such as English law or New York law will expect the agreed terms within the written word of the contract to be honoured (a principle sometimes represented by the Latin aphorism pacta sunt servanda—literally, “agreements are to be kept”). A consequence of this is that there will be a reluctance of the parties to admit any extraneous circumstances which have the object or the effect of modifying the agreed terms of the sales contract, but the selection of a common law to govern a contract is not without risk. Legal interpretations could be applied to undermine an agreed liquidated damages provision on the grounds that it constitutes a penalty, contractually-stated assessments of irrecoverable losses might be vulnerable to challenge and principles of good faith could be implied. 6 However, if a contract contains a predictive mechanism for the modification of certain terms of the contract (such as a price review provision) then the changes which have resulted from such modification would arguably be within the principle of pacta sunt servanda because the changes were predicted in (and the manner of the intended application of the changes was controlled by) the contract. The possibility of extraneous legal influence on the written word of a contract is even more pronounced in relation to civil law governed contracts, which are prone to notions of overriding fairness and which have their own Latin aphorism—rebus sic stantibus, literally “things thus standing”. This is a doctrine which implies that certain terms of a contract (or even a contract itself) could be rendered inapplicable because of a fundamental change of external circumstances—despite what the parties might have expressly agreed in the terms of their contract.

Footnotes 6

Note particularly the growing introduction into English law of the suggestion that certain forms of long-term “relational agreements” should be treated differently. See Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB) and Bates v Post Office Ltd (No.3: Common Issues) [2019] EWHC 606 (QB).

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Relational Arrangements, UKBC-GASLNGS 534049298 (2023)

Relational Arrangements Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 5 - The Contracting Process Relational Arrangements 5-017

Some commentators have suggested 7 that in some circumstances a sales contract could be treated under English law as what has been called a “relational arrangement.” 8 A contract which is eligible for the application of this nomenclature is suggested to be one which has a long intended duration and which exhibits a high degree of mutual trust and an expectation of certain loyalty between the parties in its performance. The relational arrangement proposition suggests that a duty to act in good faith could be implied into the contract, to supplement the express undertakings of the parties. Such a duty could create additional obligations in the contract, with a concomitant exposure of a party to a claim for a breach of contract. A related issue to consider is whether a provision in a sales contract which provides for an exclusive remedy for a particular breach of contract (36-008) might be operate so as to exclude the potential additional liability of a party for a breach of the implied duty of good faith which the proven existence of a relational arrangement could create. An attempt could also be made within the terms of the sales contract to ensure that the potential construction as a relational arrangement, with all which that entails, is excluded. 9

Footnotes 7 8 9

See P. Griffin, “English law in the global LNG business: international LNG sale and purchase—a relational arrangement” (2019) 3 The Journal of World Energy Law & Business, 12. See Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB) and Bates v Post Office Ltd (No.3: Common Issues) [2019] EWHC 606 (QB). See P-03.

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Introduction, UKBC-GASLNGS 493298571 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Introduction 6-001

Contracts for the sale and transportation of gas can take several forms. Model form contracts are widely-used, at least as a starting point for further negotiation. Whether a sales contract exists for a term and is firm or option-based is considered below, and consideration is given to master sale and purchase agreements and what are popularly called “depletion-based” and “supplybased” contracts (which also leads to a consideration of portfolio seller and aggregation structures). Whilst contracts for the sale of gas are mostly predicated by the expectation of a physical delivery of the underlying commodity, a notional (that is, a non-physical) delivery of gas could also be contracted for through the use of a trading contract. End of Document

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Model Form Contracts, UKBC-GASLNGS 493298566 (2023)

Model Form Contracts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Model Form Contracts 6-002

When the parties come to prepare the contracts which they require for the sale and transportation of gas they may wish to be guided by the application of any available model form contracts. The popularly recited logic for using a model form contract as the basis for a transaction is that to do so could reduce transaction times and costs and improve negotiating efficiencies through contracting on the basis of a largely settled contract form which has at least some degree of industry-wide acceptance. This is not untrue, but neither should reliance on a model form contract be used as an excuse for unthinking adherence to the particular legal and commercial positions which such a contract creates. Any model form contract will invariably require some bespoke modification to reflect the key transaction terms, but it will at least provide a good starting point for further development of the terms of the intended transaction between the parties. The following model form contracts, in the context of gas sales transportation, should be noted: (i) AIEN GSA. In 2006 the Association of International Petroleum Negotiators (AIPN), now the Association of International Energy Negotiators (AIEN), issued this contract, intended to be a long-term contract for the delivery of physical gas by pipeline. The contract is drafted from a position of neutrality between the seller and the buyer. In 2009 an accompanying pipeline gas transportation agreement, the AIEN GTA, was issued. 1 (ii) AIEN LNG MSPA. This contract is an MSPA (see below) for the spot sale of physical LNG cargoes. The contract is neutral between the seller and the buyer, and is written to encompass DES-based sales and FOB-based sales (32-006). The contract was first issued in 2009, and was updated and reissued in 2012. 2 (iii) Beach 2015. Originally issued in 2000 (as Beach 2000), this contract is used for the sale and purchase of gas for delivery at the entry point to the UK onshore gas pipeline network, the National Transmission System (NTS). The contract was updated in 2015, principally to reflect revised termination events and the calculation of termination payments. 3 (iv) BP MSPA. Issued in 2019, this contract is intended to be used for DES-based and FOB-based LNG sales. 4 (v) GIIGNL Master LNG Sales Agreement. GIIGNL (the International Group of Liquefied Natural Gas Importers) issued an MSPA (see below) for the sale of LNG in 2011. The contract comes in two versions, with selections to be made for DES-based and FOB-based sales. 5 (vi) EFET Master DES LNG Sale and Purchase Agreement.

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Model Form Contracts, UKBC-GASLNGS 493298566 (2023)

EFET (the European Federation of Energy Traders) issued an MSPA (see below) for the sale of for the sale of LNG in 2010. The contract is intended to be used only for DES-based sales. 6 (vii) Short Term Flat NBP Trading Terms and Conditions 2015 (NBP 2015). Originally issued in 1997 (as NBP 97), this contract is used for trading gas between participants at the National Balancing Point (NBP), a notional point on the NTS. The contract was updated in 2015, principally to reflect revised termination events and the calculation of termination payments. 7 (viii) EFET General Agreement (for Gas) and NBP Annex. EFET has developed a general agreement for the sale and purchase of gas, first issued in 2003. Subsequently a specific annex was developed for NBP gas trades (see below) in 2007. This agreement was updated in 2015. 8 (ix) ISDA Master Agreement and Gas Annex. ISDA (the International Swaps and Derivatives Association) has developed an MSPA (see below) for over-the-counter derivatives transactions, first issued in 1985. Subsequently specific annexes were developed to cater for North American gas trades (in 2004) and European gas trades (in 2005, and further revised in 2015). 9 (x) NAESB Base Contract. NAESB (the North American Energy Standards Board) originally issued the Base Contract for Sale and Purchase of Natural Gas in 2002, and updated it in 2006. The contract, which was developed particularly for the sale of physical gas in the US, was developed from an earlier model form contract issued by the Gas Industry Standards Board (GISB). 10 (xi) ShellLNGTime1. Developed for the shipping of LNG, ShellLNGTime1 (published in 2005) has been widely used for time chartering for LNG tankers for short-term charters, including single cargo/single trip charters and also for long-term charters. Developments of this agreement, and further charter party agreement model form contracts for LNG shipping, are considered at 34-004.

Footnotes 1 2 3 4 5 6 7 8 9 10

Available at http://www.aien.org. Available at http://www.aien.org. Available at http://www.gasgovernance.co.uk/sites/default/files/Beach%202015%20(5_5)%20-%20FINAL.pdf. Available at http://www.bp.com. Available at http://www.giignl.org/publications. http://www.efet.org/Standardisation/Legal-EFET-Standard-Contracts-and-Documentation. http://www.gasgovernance.co.uk/sites/default/files/NBP%202015%20-%20FINAL.pdf. http://www.efet.org/Standardisation/Legal-EFET-Standard-Contracts-and-Documentation. Available at http://www2.isda.org/asset-classes/energy-developing-products. Available at http://www.naesb.org

End of Document

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2

Term, Firm and Option Contracts, UKBC-GASLNGS 493298569 (2023)

Term, Firm and Option Contracts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Term, Firm and Option Contracts 6-003

A sales contract could be a term contract, which provides for the sale and purchase of gas between the parties for a defined period of time on whatever commercial basis is agreed between the parties. Apart from identifying the buyer and the seller, such a contract will recite the key components of their commercial relationship. A term contract will often be described as midterm or as long-term. A mid-term contract usually represents a commitment for a period of between one and five years and a long-term contract is usually taken to mean a contract which could be in place for between 10 and 20 years. These periods of time should not be regarded as rigid limitations in the categorisation of any particular contract. A sales contract can sometimes also be distinguished on the basis of whether it creates a firm contract or an option contract. Under a firm contract formulation the seller must supply gas against the buyer’s stated requirements and will be liable for a seller’s delivery failure (19-002) for its failure to perform (subject to the availability of force majeure relief (35-001) in the seller’s favour, unless a requirements contract formulation (11-009) is adopted). In contrast, an option contract formulation seeks to afford some greater latitude to the seller in the satisfaction of its obligation to supply gas. The option contract manifests itself for example through the inclusion of a deliver or pay right for the seller (19-006) or the existence of interruption rights (11-014). End of Document

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Master Sale and Purchase Agreements, UKBC-GASLNGS 493298568 (2023)

Master Sale and Purchase Agreements Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Master Sale and Purchase Agreements 6-004

The contractual terms for the sale and purchase of gas could be agreed between the parties on a one-off basis for a particular quantity of gas but a popular arrangement is a master sale and purchase agreement (MSPA), whereby the seller and the buyer will enter into an overall master agreement which sets out the general terms upon which they will sell and buy gas should they elect to do so. Under such an agreement there is no obligation upon the parties to sell or buy gas (and the buyer will not be subject to a take and pay or a take or pay commitment (16-003, 16-004)) but when the parties do wish to transact they will complete an ancillary transaction schedule (typically called a “confirmation notice”) which will be deemed to apply the general terms of the MSA and which will also contain transaction-specific items such as the contract price, the delivery point, the quantity and the delivery period. The terms of an MSPA can be settled by negotiation between the parties, and most gas trading entities will have their own preferred form of agreement, or the parties might rely on an industry-standard model (such as the AIEN, BP, EFET, GIIGNL, NAESB or NBP forms (see above)). The contracting philosophy which underpins an MSPA is explained clearly by the guidance notes for the AIEN model form MSPA. 11 The MSPA is widely used for the sale and purchase of quantities of LNG (and often for the sale of a single LNG cargo or strip of cargoes). There is no industry standard MSPA for this purpose, although the AIEN MSPA and the BP MSPA model forms (see above) are widely used as a starting point for further negotiation. Most LNG trading entities have developed their own particular forms of MSPA, and whilst these agreements are broadly similar they can also be subtly different. This will inevitably lead to the risk of a mismatch between the different forms of MSPA which together make up a transaction for the sale, purchase and delivery of LNG (and particularly so where LNG cargoes are traded on a back-to-back basis), and this will need careful management, which in turn will increase the costs of contracting and which will slow the contracting process. 12 This approach can also create a barrier to entry for new market participants, who will have to understand and accommodate the various MSPA forms as a precursor to trading, and will inevitably impact the efficiency of contracting.

Footnotes 11

12

“The Parties should complete and execute the Base Contract, which includes a checklist of options and alternatives, at the same time that they agree the MSPA. While the MSPA is effective upon execution of the Base Contract by both Parties, the obligations to buy and sell LNG are not in effect unless and until the Parties (or their affiliates) complete and execute a Confirmation Memorandum setting forth the commercial provisions applicable to a specific cargo(s). The Parties (or their affiliates) may enter into multiple Confirmation Memoranda to purchase and sell cargoes under a single MSPA. The Base Contract form allows a user to identify the various alternatives and options elections required to be made to utilise the MSPA. The alternatives and options in the Confirmation Memorandum are relatively self explanatory.” An intriguing suggestion which has been made to overcome this risk is for the industry-wide adoption of a set of general terms and conditions for the trading of LNG, which would be incorporated by reference into a simple form of contract for

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Master Sale and Purchase Agreements, UKBC-GASLNGS 493298568 (2023)

the sale and purchase of LNG. See R. Maalouf, “The Essential Evolution of LNG Trading—Moving to GTCs” (2018) 11 The Journal of World Energy Law & Business 5. End of Document

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2

Supply and Depletion Contracts, UKBC-GASLNGS 493298570 (2023)

Supply and Depletion Contracts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Supply and Depletion Contracts 6-005

A sales contract could be distinguished on the basis of whether it is a depletion-based contract or a supply-based contract. Understanding the popularly-recited differences between these two formulations is helpful in appreciating that in practice the distinction is rarely so clear. In a depletion-based contract (sometimes called a “dedication contract” or a “field sales contract”) the seller will dedicate a nominated gas field to the buyer and will undertake to produce for sale to the buyer all or at least a significant defined percentage of the reserves of gas (12-020) in that field. A depletion-based contract provides the seller with an assured sale of the gas from the dedicated gas field and gives the buyer the expectation of receiving the reserves of gas which the sales contract provides for. Several features characterise a true depletion-based contract: (i) Sources of supply. A nominated gas field will be dedicated by the seller for the exclusive sale of gas to the buyer. The buyer could see this dedication as the quid pro quo for its take and pay or take or pay commitment which enables the field to be developed and consequently the buyer will rely on the dedication mechanism as a means of preventing other buyers from benefiting from the seller’s development. Despite the dedication of the gas field there might also be provision for the seller to substitute gas from other sources for the production from that gas field, although the buyer might impose some limits on this mechanism. As a partial counter to the complete dedication of the nominated gas field to the buyer a sales contract could apply certain seller’s reservations (11-013) in order to reserve some continuing operational rights to the seller in respect of the dedicated gas. This dedication might also be disapplied where the seller is exercising a right to suspend its obligations because of the buyer’s default or during any force majeure resale arrangement. (ii) Quantities. Because the sales contract is for the sale and purchase of whatever gas quantities are contained within the dedicated gas field, the annual contract quantity (12-004) for each year is likely to vary in accordance with the profile for the production of gas from the dedicated gas field over its lifetime. The annual rate of gas production will typically ramp up at the start of the sales contract as the gas field comes on-stream (the ramp up period), achieve a plateau level of production as the gas field performs at its optimum rate (the plateau period—set by reference to time and/or delivered volumes of gas) and eventually ramp down as the reserves of gas in the dedicated gas field begin to deplete (the decline period). Determining the start of the decline period requires a balancing act between recognising the difficulty which the seller may have in predicting the point at which production from the gas field will begin to drop off and recognising the buyer’s desire for certainty and reasonable advance notice, so that the buyer can plan for alternative gas supplies. The seller will notify the start of the decline period to the buyer (typically by a combination of long-lead best estimates and shorter term fixed predictions) and the quantity of gas (the decline pattern) which can be produced in each year during the decline period will be determined annually by the seller as the maximum sustainable level of gas production which the seller reasonably believes it can maintain. If the buyer disputes that the seller is meeting this delivery commitment then the buyer will usually be able to seek an independent

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Supply and Depletion Contracts, UKBC-GASLNGS 493298570 (2023)

expert’s determination of the issue (40-004). The buyer might require a decline pattern to be set to apply more frequently than annually, in order that a more realistic and less acute rate of decline is applied towards the end of the gas field’s life. (iii) Reservoir force majeure. Under a depletion-based contract the seller’s performance will depend upon the continuing physical productivity of the reservoirs of gas in the dedicated gas field. The seller will seek to protect itself from bearing the risk of non-performance of the reservoirs through securing in the sales contract the right to claim force majeure relief for reservoir failure.

6-006

(iv) Economic termination. The seller will require a right to terminate the sales contract where it is no longer economic for the seller to continue to produce gas from the dedicated gas field, to protect the seller from being burdened with an economically unproductive project. What is and is not economic might be left undefined, although to do so could be a recipe for dispute. Alternatively the determination of whether something is or is not economic could be left to a general comparison with what a reasonable and prudent operator (41-023) would expect to be the case, but the clearest solution is to include an explicit definition, based, for example, upon the receipt by the seller of a positive cash flow, derived from the difference between costs of production and the revenue received by the seller under the sales contract. The seller might also require that the positive cash flow is sufficient to enable the seller to earn an acceptable level of return (according, for example, to a test of what a reasonable and prudent operator would be willing to accept), to protect the seller from being obliged to continue with a positive, but marginal, economic position. Whether something is or is not economic will also be determined in part by the application of tax liabilities. If the definition of “economic” is a post-tax determination then the effects of taxation can be taken into account by the party claiming the right to terminate on economic grounds. By contrast, a pre-tax definition could leave a party with a revenue profile which satisfies the definition of being economic pre-tax but not post-tax. A buyer might be reluctant to enter into a sales contract with a duration which depends on whether a particular test of what is or is not economic has been satisfied and instead the buyer might require a greater degree of predictability. The buyer might therefore require the sales contract to state that there will be a guaranteed minimum plateau period (defined by reference to time or to delivered quantities of gas) before the seller can exercise its economic termination right. This is effectively creating a firm delivery period within a depletion-based contract and will protect the buyer from the (perhaps remote) risk that the seller could terminate the sales contract before any gas is ever produced for delivery on the grounds that it is immediately uneconomic to produce such gas. In a supply-based contract the gas is treated as a fungible commodity and the seller commits to deliver specified quantities of gas to the buyer over a given period. This assumes that the seller has access to reserves of gas without linkage to a particular gas field’s production profile. Several features characterise a true supply-based contract: (i) Sources of supply. The sources of supply of gas need not be specifically identified nor dedicated to the buyer in the sales contract, and in practice the seller could deliver gas from a portfolio of fields, facilities or contractual rights and could make good any deficiencies in a particular field by delivering gas from alternative fields or supply sources, or from gas sourced from third party trades. Supply-based contracts are particularly suited to where the seller has multiple gas production and transportation facilities and/or contract entitlements and is able to facilitate a delivery of gas from diverse sources. The buyer might require some degree of control over the freedom of the seller to select the alternative sources of supply, however, out of concern that the seller might select sources of supply which are less reliable and more susceptible to potential force majeure claims. (ii) Quantities. The annual contract quantity will usually be an absolute quantity of gas to be delivered at a consistent rate during the term of the sales contract. There might be a commercially-driven ramp up at the start and/or ramp down at the end of the term

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Supply and Depletion Contracts, UKBC-GASLNGS 493298570 (2023)

of the sales contract in order to fit with the buyer’s requirements (e.g. a ramp up as the buyer’s gas demand is established and a ramp down as the buyer brings on other sources of supply of gas) but these modulations of contract quantities will not be driven by the productivity of a particular gas field, as is the case for a depletion-based contract. Since a ramp up and a ramp down which are driven by commercial demands, rather than in light of the production profile of a particular gas field, will entail a reduced rate of production of gas and so a reduction in available revenue the seller could require that a ramp up and a ramp down in favour of the buyer in such circumstances is kept to a minimum. (iii) Reservoir force majeure. This risk will typically remain with the seller in that the seller will be less able to claim complete force majeure relief in respect of the non-performance of the multiple gas fields or other interests which underpin the performance of the sales contract.

6-007

(iv) Economic termination. The seller is typically not entitled to exercise an economic termination right in respect of the sales contract, since the seller could in theory switch gas production to other, economically preferable production sources in order to continue to meet the needs of the sales contract. Aside from the particular indicia of gas field dedication, quantities profiles, the allocation of reservoir risk and economic terminability, whether a sales contract can be characterised as being depletion-based or supply-based might also be determined from an examination of several other characteristics: (i) The remedy for the seller’s failure to deliver gas. The seller may be prepared to undertake a more meaningful liability for a seller’s delivery failure (19-002) in a supplybased contract than in a depletion-based contract because the seller should have greater access to alternative supplies of gas in order to mitigate the risk that the seller will fail to deliver gas. (ii) The price. In a supply-based contract the buyer potentially accesses greater security in the prospects for the delivery of gas. This could be reflected in a higher contract price (13-001) than in a depletion-based contract, where a lower contract price might be required by the buyer in order to compensate for the exposure to reservoir risk or the prospect of economic termination by the seller.

6-008

(iii) Facilities force majeure relief. Where under a supply-based contract the seller is delivering gas from a reliance on multiple production and transportation facilities the buyer may be less willing to afford wide rights of relief for force majeure events to the seller for all of these facilities, since the seller should be able to modulate its deliveries of gas from across these various facilities (with such modulation to be applied prior to any claim for force majeure relief being made). In practice it is often the case that a particular sales contract will demonstrate something of a combination of the characteristics of a depletion-based contract and a supply-based contract. Where a particular sales contract ends up will be the product of negotiation between the buyer and the seller but a hybrid regime which sometimes appears in practice is one which demonstrates the following combination of characteristics: (i) Contract quantities. An absolute contract quantity (12-003) is set with a steady annual contract quantity (12-004) for each year during a defined basic term (suggesting a supply-based contract). (ii) Sources of supply.

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Supply and Depletion Contracts, UKBC-GASLNGS 493298570 (2023)

The seller dedicates a nominated gas field to the buyer (suggesting a depletion-based contract) but also undertakes to deliver substitution gas from alternative sources, and possibly even also to procure additional reserves of gas, if there is a problem with production from the dedicated gas field (suggesting a supply-based contract). (iii) Price. The buyer pays a contract price for gas which is more in line with supply-based contract pricing. (iv) Economic termination. The seller has a right to terminate the sales contract before the expiry of a defined basic term, possibly subject to the passage of a defined plateau period, if the continued performance of the sales contract ceases to be economic (suggesting a depletion-based contract). (v) Force majeure relief. The seller gets wide force majeure relief for its upstream facilities, including the gas reservoirs within designated sources of gas supply (suggesting a depletion-based contract). The popular view is that a supply-based contract favours the buyer, because of greater security of supply, and that a depletionbased contract favours the seller, because of insulation against the risk of non-performance, but this over-simplified analysis ignores the reality that either form of contract will typically be negotiated between the parties so as to effect a more balanced distribution of the positive and the negative attributes between them. 6-009

The traditional structuring of long-term gas sales arrangements was usually done on the basis of a depletion-based contract with a significant take or pay commitment. In exchange for the buyer’s long-term commitment to buy gas the seller would commit the production from the dedicated gas field to the buyer and would then embark on the development of the necessary gas production and transportation infrastructure, using the buyer’s commitments as collateral to underpin its investment. Since supply-based contracts are more appropriate where multiple options for the production and transportation of gas are open to the seller, as increased amounts of gas production and transportation infrastructure are built and come on-stream then the buyer and/or the seller might come to favour buying or selling gas on a supply-based contract basis. As gas markets deregulate, fragment and develop, often with increased private sector participation in developing gas production and transportation infrastructure, there is a trend towards greater flexibility in gas marketing which is evidenced by a move away from depletion-based contracts towards supply-based contracts, and ultimately even to gas trading on relatively standardised terms. Although depletion-based contracts might seem unfashionable in the wake of energy sector deregulation such contracts, or at least hybrid forms of depletion-based contracts, could still be used as a model for greenfield gas field developments and gas production projects. End of Document

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Portfolio Sales and Aggregation, UKBC-GASLNGS 493298567 (2023)

Portfolio Sales and Aggregation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Portfolio Sales and Aggregation 6-010

Supply-based contracts (see above) are essential in creating what is sometimes called a “portfolio seller”. This is a shorthand term for the situation where a seller of gas has access to a number of gas supply sources which feed into its central portfolio, from which the needs of a particular buyer can be met. Gas is sold by the seller on a fungible basis, and in the portfolio sale of gas several of the conventionally accepted elements of the sales contract which are associated with a depletion-based sale could see some modification: (i)The removal of provisions relating to reserves certification (12-020), overselling control (12-023) and facility-specific force majeure relief (35-001) for the seller. (ii)An increased need for a source of supply certification protection for the buyer. (iii)The seller’s preference for the buyer to give a take and pay commitment with no (or limited) make up rights, rather than a take or pay commitment with make-up rights. (iv)The seller’s commitment to pay liquidated damages in the event of a seller’s delivery failure, or a deliver or pay payment, essentially so that the seller can predict the price of its delivery failure if an attractive arbitrage opportunity presents itself. In an aggregation project a buyer of gas could be buying gas not for its own consumption, but rather for absorption into a wider portfolio for later onward resale as a relatively fungible commodity to end-users:

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Portfolio Sales and Aggregation, UKBC-GASLNGS 493298567 (2023)

6-011

The primary sale and purchase relationship will still be contained in the sales contract between the seller and the buyer but it could be that the buyer has little intrinsic value since it depends on the cash flow of its end-users in order to meet its commitments under the sales contract. In this situation the seller might be more comfortable with assessing the creditworthiness of the overall gas project by particular reference to the value of the end-users. This issue will be of particular relevance if a sales contract contains a step-in right in favour of the seller (15-006). End of Document

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Trading Contracts, UKBC-GASLNGS 493298572 (2023)

Trading Contracts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 6 - Contract Forms Trading Contracts 6-012

Most contracts for the sale of gas are predicated by the expectation of a physical delivery of the underlying commodity (hence the term “physical contracts”, and this is the expectation in this book), although a notional (that is, a non-physical) delivery of gas could also be contracted for. In recognition of the relative inflexibilities of pricing where gas is bought under a term contract, and recognising that trading short-term volatility in gas prices can offer a commercial opportunity to make a gain, many buyers have elected to conduct their gas-buying activities within a trading regime. Such arbitrage recognises the possibility of short-term gas price variations and the opportunity to trade gas for profit through exploiting those variations, using certain forms of trading contract. Trades can be made for deliveries of gas for periods varying from one day to one year later. Trades can be made for delivery on the same day as the trade is made (called “intraday”) or within up to two days of that date (called a “spot delivery”), for delivery at a point later during the same month as the date when the trade was made (called a “prompt delivery”) or for delivery at a point during any later month (called a “forward delivery”). LNG deliveries, because of the manner of transportation of the commodity, offer much less immediacy of flexibility for trading purposes when compared to pipeline gas deliveries. In a trade the buyer is not obviously interested in the source of gas which it is buying (other than to ensure it is not sourced from an embargoed country) and will not be willing to share in any of the risks associated with the production of that gas. Consequently the trade will be a pure supply-based contract for the delivery of a defined quantity of gas for a defined period and at a defined price. Trades are useful tools by which supply and demand can be modulated, enabling a person to act as the buyer or the seller in order to acquire or dispose of additional gas. Where a trading regime does exist a person who recognises and embraces the opportunities which arbitrage presents will usually seek to temper the corresponding risk of being adversely affected by price volatility, or even the risk of a lack of gas where demand outstrips supply, by undertaking trading only to a limited extent. That person might also therefore contract to buy or sell at least a portion of their gas requirements through term contracts, in the interests of greater price stability and security of supply. Non-physical sales contracts which might be considered for gas trading are the ISDA master agreement for the trading of derivative interests and the EFET gas general agreement (see above). Both ISDA and EFET have issued NBP appendices, based on the NBP terms (see above), which can be appended to the master agreement and the general agreement respectively. The NBP 2015 contract in particular is intended for the trading of gas entitlements between shippers in the NTS. NBP 2015 is founded on the principle of notional trading at the NBP, and relies for its efficacy on an interface with the Uniform Network Code. The NBP is not actually a physical location but rather is a virtual trading and pricing point at which defined volumes of gas are traded between NTS participants. NBP 2015 is not a physical contract, in that it does not provide for the transfer of title to physical volumes of gas between a seller and a buyer, and neither does it provide for a physical delivery point. Rather, each party makes an equal and opposite delivery and offtake nomination for what is intended to be a matching volume of gas which is then effected between the parties, through an anonymised trading exchange platform, by the NTS’s system operator. This operator has responsibility for the physical transportation of gas and for keeping the system in balance if shippers as a whole are out of balance.

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Trading Contracts, UKBC-GASLNGS 493298572 (2023)

The volume of gas which is traded at the NBP also leads to a reported gas trading price. The NBP price is used as a reference point for most UK gas trades and has assumed significant importance; other European gas hubs trade NBP prices, and NBP prices are often used as a bellwether for the pricing of LNG trades. End of Document

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Introduction, UKBC-GASLNGS 534049301 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 7 - Competition Law Principles Introduction 7-001

As part of the process of deregulation of markets and in order to enhance and protect competition, applicable domestic or regional laws could impose certain provisions which could condition gas sales and transportation contract terms. The freedom of the parties to contract as they wish to realise their commercial aims in their project contracts must be read in light of the prevailing competition law regime (which could consist of general competition law rules and energy sector–specific competition law rules applied together). The parties will also need to have regard to the potential rights of a third party to secure access to gas production, transportation, storage or processing infrastructure and also to how certain usage, resale and exclusivity restrictions which the parties might be agreed on commercially could otherwise be precluded. End of Document

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General Competition Law Principles, UKBC-GASLNGS 534049303 (2023)

General Competition Law Principles Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 7 - Competition Law Principles General Competition Law Principles 7-002

Principles of competition law could exist concurrently at more than one level (that is, both nationally and regionally).

7-003

In the UK the principal legislative item is the Competition Act 1998. Section 2 prohibits agreements which may affect trade within the UK and which have as their object or effect the prevention, restriction or distortion of competition within the UK, and s.18 prohibits conduct which amounts to the abuse of a dominant position in a market if it may affect trade within the UK. Apart from the reputational damage which could result from a breach of the 1998 Act, substantial fines can be imposed (for both businesses and individuals), the affected agreement could be declared void and unenforceable, follow-on private actions for damages are possible and criminal sanctions could even be applied.

7-004

In a wider European context, the competition law principles in the Treaty on the Functioning of the European Union (TFEU) are relevant, where the key provisions are found in Articles 101 and 102. Article 101 is broadly similar to s.2 of the Competition Act 1998 and Article 102 is broadly similar to s.18 of the same Act, except that the TFEU prohibits anti-competitive behaviour where there is an effect on trade in the European Union.

7-005

The application of competition law is not a static concept. It is in a constant state of evolution, reflective of the prevailing social, political, commercial and regulatory conditions which apply from time to time to a particular market (see below). Contractual commitments between parties, and the expectations of those parties as to how their contracts should be structured, will need to be reviewed constantly to ensure continuing compatibility.

7-006

The parties could wish to preserve and protect their wider commercial interests which flow from their gas sales and transportation arrangements through the imposition of certain commercial restrictions and commitments. These provisions could be agreed as a matter of contract but will need to be considered very carefully in light of the application of any relevant competition law principles. A seller might, for example, wish to impose certain restrictions in respect of the gas which it sells to a buyer, 1 along the following lines: (i) Usage restrictions. After gas has been delivered to the buyer then the buyer can only use it for the purposes for which it was originally intended (e.g. as a feedstock for power generation) and cannot use it for any other purpose (e.g. as a feedstock for petrochemical production). (ii) Resale restrictions (original market). After gas has been delivered to the buyer then the buyer can only use the gas itself and cannot resell the gas to another buyer in the same market.

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7-007

(iii) Resale restrictions (alternative market). After gas has been delivered to the buyer then the buyer can only use the gas itself and cannot resell the gas to another buyer in another market. A seller might also require a buyer of gas to buy all of its gas requirements exclusively from the seller. This would capture any present and future purchase requirements of that buyer. The same effect might be achieved, at least in part, by a take or pay infidelity provision (16-009). Equally, a buyer might require that sales of gas into a particular market by a seller are made exclusively to that buyer and that the seller will not sell gas to any other buyer, or to any end users of the buyer. These restrictions (which could apply to pipeline gas deliveries where there is a delivered sale or a tailgate sale (11-002), or to LNG deliveries where the sale is DES-based or FOB-based (32-006)) could be intended to preserve a segregation of the markets into which the seller is selling gas to the buyer and to other buyers. All of the usage, resale and exclusivity restrictions which are described above can be agreed between a buyer and a seller as a matter of contract but their efficacy as a matter of law will need to be considered carefully in light of the prevailing competition law provisions to which the parties, or their arrangements, might be subject. In the context of the European Union there has been much debate about the efficacy of such restrictions. 2

7-008

The advent of war between Russia and the Ukraine in early 2022, and the subsequent imposition of sanctions on Russian pipeline gas and LNG imports into Europe and rapid increases in the costs of imported energy, led to the reversals of certain accepted competition law doctrines. In March 2022 the European Council announced a desire to consider whether what it called “an aggregator model/single buyer” (including the “voluntary common purchase of gas and LNG…making optimal use of the collective political and market weight of the European Union and its Member States to dampen prices in negotiations”) could be applied to reduce the price of gas imports into Europe. In April 2022 the European Commission hosted the first meeting of the EU Energy Platform, a vehicle for the common purchase of gas and LNG. This was described as a voluntary coordination mechanism which would include provisions for demand pooling, coordinated infrastructure use, and preparation for joint purchases, acting at the European Union level rather than at the Member State level. In June 2022 the European Council adopted a new Regulation 3 to ensure the effective filling of European Union gas storage facilities before the winter season, including through the use of platforms for the joint purchase of gas and LNG. The Regulation included a caveat that the procurement efforts: “shall not unduly distort competition or the proper functioning of the internal market in gas or endanger the security of gas supply of other Member States or of the Union.” Whether the potentially conflicting aims of introducing a regime for the joint purchasing of gas and LNG and maintaining the requirement that participating companies must ensure full compliance with European Union competition law can be reconciled remains to be seen.

Footnotes 1 2

See P-04. See for example any of the following items: COMP/37.811 – Territorial Restrictions 1) Algerian gas export contracts 2) Expansion of TAG pipeline; Commission press release, “Commission reaches breakthrough with Gazprom and ENI on territorial restriction clauses”, (IP/03/1345), 6 October 2003; COMP/38.085 – PO/Territorial restrictions – Austria; Commission press release, “Competition: Commission secures improvements to gas supply contracts between OMV and Gazprom”, (IP/05/195), 17 February 2005; Commission press release, “Commission secures changes to gas supply contracts between E.ON Ruhrgas and Gazprom”, (IP/05/710), 10 June 2005; Commission press release, “Commission

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3

settles investigation into territorial sales restrictions with Nigerian gas company NLNG”, (IP/02/1869), 12 December 2002. DOCPROPERTY “CUS_DocIDString”. Regulation (EU) 2022/1032 of the European Parliament and of the Council of 29 June 2022 amending Regulations (EU) 2017/1938 and (EC) No.715/2009 with regard to gas storage.

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Third Party Access Rights, UKBC-GASLNGS 534049299 (2023)

Third Party Access Rights Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 7 - Competition Law Principles Third Party Access Rights 7-009

“Third party access” (TPA) is a simple shorthand for a device which can represent a great deal of complexity for gas project owners and which can also bestow a fair degree of opportunity on would-be project participants.

7-010

The regulation of a particular gas market could apply a presumption in favour of the rights of a gas production, transportation, storage or processing infrastructure item owner to be able to use that infrastructure item solely for its own benefit. Alternatively, regulation could allow a third party to secure rights of access to any spare (that is, presently unutilised) capacity in that infrastructure item, subject to compliance by that third party with certain commercial and financial terms which are applied by the owner. This is the essence of TPA. The investment required to build infrastructure needed to produce, transport, store or process gas is characterised by significant costs and also by the principle of irreversibility (that is, once infrastructure has been installed then it will remain in place until it is eventually decommissioned). Thus, the early history of gas project infrastructure development in the UK was characterised by project participants developing infrastructure as they needed it and then keeping it for their own use. This philosophy of exclusive access suffers from certain deficiencies however: (i) Proliferation. If every market participant builds the infrastructure item it needs then there is a risk of the proliferation of new infrastructure, to the point where the market as a whole is saturated and becomes inefficient. The proliferation of duplicated infrastructure is generally regarded as undesirable because new infrastructure items could interfere with the rights of other infrastructure owners or users, and also because the introduction of uncontrolled amounts of new infrastructure could have a damaging impact on the environment. There is a balance to be struck here however, because new infrastructure can enhance competition and can also promote greater overall security in the supply of energy through facilitating new project developments. (ii) Inefficiency. The operational reality is that most infrastructure items will in practice demonstrate a greater level of capacity (whether for gas production, transportation, storage or processing, as the case may be) than was originally envisaged by the infrastructure owner, and spare capacity could also become apparent where the level of capacity required by the infrastructure owner drops off over time. Unused capacity makes the particular infrastructure item (and also the overall market) inefficient. (iii) Market exclusion. There may be persons who wish to be participants in a particular segment of a gas market but who are unable to realise this ambition because they are unable to develop their own items of gas production, transportation, storage or processing infrastructure (whether for economic, commercial or regulatory reasons). These persons would therefore be excluded from market participation, in the absence of a compellable right to access any spare capacity in infrastructure belonging to others. As an illustration of this, trunklines (25-002) have tended to be owned and operated by gas producers principally to ensure the carriage of their own gas production. It could be the trunkline owner’s preference to deny the carriage of third party gas

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Third Party Access Rights, UKBC-GASLNGS 534049299 (2023)

7-011

7-012

(which could ultimately be competitive in a downstream market). Thus, even where there is spare capacity the trunkline owner might deny access, or at least might fix a tariff payable by a third party (29-002) as being sufficient to compensate the trunkline owner for the lost opportunity cost of not using that capacity itself, rather than by reference to what the third party could pay. This could disincentivise the third party from using the spare capacity in the trunkline. The initial phase of the primacy of the interests of the infrastructure owner is often followed by a period when any spare capacity in the infrastructure is progressively made available for use by third parties, upon the payment of an appropriate tariff. Such spare capacity would become available for example when gas fields are depleted through production, leading to spare capacity in the underlying production and/or transportation infrastructure, which could be made available to third parties in order to generate additional revenue for the infrastructure owner. This is often a natural, commercial decision which is taken votively by the infrastructure owner. Where a right is granted by an infrastructure owner to a third party to utilise spare capacity in an infrastructure item then a soft form of TPA has arrived, where the infrastructure owner voluntarily permits a third party to access spare capacity on an ad hoc basis. Moving on from this, TPA rights could become firmer where third parties start to believe in a sense of entitlement to be allowed to use spare capacity, and this will particularly be so where there is some form of regulatory presumption in favour of such an entitlement. Third parties might feel that they suffer from inequality of bargaining power in comparison with existing infrastructure owners, and to this end they could argue the need for clear legal and regulatory support for their positions when negotiating TPA rights. Because of the potential for commercial tension between infrastructure owners and third parties seeking access to infrastructure that tension will require some form of regulation. In terms of facilitating the rights of third parties to secure access to spare capacity in infrastructure owned by others it is necessary to consider three regulatory aspects: voluntary codes of practice promulgated by sector participants; the application of national law; and the impact of regional legislative codes.

7-013

Ensuring the adequacy of provision for TPA is an ongoing obligation of government, to be the subject of continuous review in light of prevailing market demand and supply conditions. The applicable law and regulation may require constant fine-tuning in light of prevailing economic and commercial circumstances. Indeed, most governments have over time proved themselves generally willing to provide that support, particularly as gas markets continue their transition towards being a mature gas province and gradually increases its dependence on imported gas supplies in order to make good declining indigenous gas production. TPA as a concept has much to recommend it. There is often an inverse relationship between the (declining) rate of gas production from a relatively mature gas province and the (increasing) level of regulation in respect of TPA for access to gas production, transportation, storage and processing infrastructure. Thus, any new infrastructure which is permitted for development will usually be accompanied by the encouragement of the relevant parties to cooperate in the design and the construction of that infrastructure according to future potential and the provision for tie-ins for third parties wishing to utilise any spare capacity.

7-014

In the context of gas production and transportation infrastructure TPA makes feasible the development of a smaller gas field which, of itself, could lack sufficiently robust economics to allow the installation of its own dedicated infrastructure as a necessary part of its development. To be economically viable such a smaller gas field has to secure fair rights of unhindered access to existing gas production and/or transportation infrastructure which is owned and/or operated by existing market participants. This could make the reserves of gas in a field commercially recoverable.

7-015

Two paradoxes should be noted in the context of TPA: (i) TPA and monopolies. A paradox exists between promoting greater market access for third parties through TPA and creating a monopolylike situation in consequence of doing so. TPA arguably promotes the greatest (and so most efficient) use of existing infrastructure, through avoiding new infrastructure developments. Preventing the duplication of key infrastructure items

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Third Party Access Rights, UKBC-GASLNGS 534049299 (2023)

can however lead to the creation of monopoly-like rights for existing infrastructure items, where new (and potentially competitive) infrastructure does not get built as a consequence. This will in return reduce the scope for competition between infrastructure owners. Whilst monopoly situations are generally to be avoided in the economic engineering of any competitive market it may be that a heavily-regulated monopoly (such as an existing item of gas production, transportation, storage or processing infrastructure, subjected to TPA in respect of any spare capacity) is defensible as the best possible outcome.

7-016

7-017

(ii) Preventing and promoting investment. A paradox exists between deterring unnecessary investment and deterring any investment at all. A highly-interventionist TPA programme (and particularly one which exerts close control over the level of compensation potentially payable to an infrastructure owner by a third party) could have the effect of deterring the construction of new infrastructure by potential investors at the outset, on the basis that the resultant returns (based on tariff income rather than equity enjoyment) are insufficiently attractive. This lack of future investment, if it becomes sustained, could operate to the detriment of the underlying market. Today in the UK TPA rights created by statute are principally set out in the Energy Act 2011. This Act establishes a presumption in favour of a third party wishing to access unused capacity in an item of infrastructure owned by another person, upon application to that owner. In certain circumstances the infrastructure owner can apply for an exemption from third party rights of access. The recognition of TPA under European law was originally effected by the First Gas Directive (Directive 98/30/EC), whereby each EU Member State was required to select a regime for affording third party access to gas pipelines and other facilities based on the objective, transparent and non-discriminatory application of the following regimes: (i) Negotiated access. Pipeline owners and eligible shippers will negotiate access to infrastructure according to good faith negotiations and voluntary commercial agreements based on published conditions of use (negotiated third party access (nTPA)).

7-018

7-019

(ii) Regulated access. Pipeline owners and eligible shippers will negotiate access to the pipeline according to a right of access based upon published tariffs and other conditions of use (regulated third party access (rTPA)). In 2003 the Second Gas Directive (Directive 2003/55/EC) was published, which repealed the First Gas Directive (although it retained the key principles of facilitating third party rights of access to gas infrastructure). These requirements were largely repeated, and also somewhat extended, in the Third Energy Package, which consists of two measures: Directive 2009/73/EC concerning common rules for the internal market in natural gas (the Gas Directive); and Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks (the Gas Regulation). 4 The key objective of the Third Energy Package is to liberalise and to integrate the originally separate gas markets of the individual EU Member States that were dominated by national or regional vertically integrated monopolists, principally by removing the competitive advantage that such monopolists enjoyed from owning and operating gas transportation infrastructure, by applying three elements: (i) Unbundling. This is aimed at ensuring an effective separation of gas transportation infrastructure from the activities of gas production and gas supply. Without such separation there is a risk of discrimination in the operation of the gas transportation infrastructure, and also a risk that there could be a lack of incentive to make continued investment in gas transportation infrastructure. As a starting point the Gas Directive requires EU Member States to ensure full ownership unbundling (OU), which implies the

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Third Party Access Rights, UKBC-GASLNGS 534049299 (2023)

appointment of a separate owner of the gas transportation infrastructure, with full independence from any gas production or gas supply interests. In relation to gas transportation infrastructure that belonged to a vertically integrated entity on 3 September 2009, the Gas Directive allows EU Member States, at their discretion, to make available in their national legislation, in addition to the OU model, certain alternative unbundling models, namely the independent system operator (ISO) model, pursuant to which an undertaking with gas production or gas supply interests can continue to own the gas transportation infrastructure but must appoint an independent entity to carry out all the operator functions, and the independent transmission system operator (ITO) model, pursuant to which an undertaking with gas production or gas supply interests may (through a separate affiliate) continue to own and operate the gas transportation infrastructure, subject to certain organisational and governance provisions aimed at safeguarding the independence of the ITO relative to the parent company to which it belongs. (ii) Tariff regulation. Regulated tariffs are intended to prevent a gas transportation infrastructure owner holding a monopoly position from foreclosing competitors by charging artificially high gas transportation costs. To prevent the abuse of a monopoly position the Gas Directive has conferred the power to set or approve tariffs or tariff methodologies upon independent national regulatory authorities (NRAs). While they must respect certain requirements set out in the Gas Directive (methodologies must be non-discriminatory, transparent, reflect the actual costs incurred by an efficient economic operator and provide gas transportation infrastructure owners with appropriate incentives), NRAs enjoy wide discretion in developing or approving tariff-setting methodologies that are best suited to the particular gas transportation infrastructure topology.

7-020

(iii) Third party access (TPA). The Gas Directive requires a system of TPA to be applied to gas transportation infrastructure, applicable to all eligible pipeline users and to be applied objectively and without discrimination between pipeline users. TPA consists of two elements: physical connection to the gas transportation infrastructure; and the right of a pipeline user to use the gas transportation infrastructure by getting access under fair and non-discriminatory terms. Regulation such as the Third Energy Package could make investment in major new gas infrastructure more difficult by reducing the predictability of the economic recovery of these investments. A vertically integrated monopolist can be reasonably certain that it will be able to recover the cost of investment in new gas transportation infrastructure from its gas supply customers. Furthermore, a project company which is set up to develop gas transportation infrastructure will usually consist of a number of gas supply companies that will conclude a long term gas transportation agreements with the pipeline project company for the full capacity of the gas transportation infrastructure, providing it with long term revenue certainty that makes the project commercially viable and financeable. By contrast, a company that operates gas transportation infrastructure under the rules of the Third Energy Package faces the potential uncertainties that there may not be sufficient third party customers that book capacity in the gas transportation infrastructure, and that the tariffs which will be approved by the regulator are uncertain at the time of making the required investment. As a result, the owner of regulated gas transportation infrastructure runs the risk that a significant investment in major new gas transportation infrastructure would not generate sufficient revenue to recover the investment made, let alone generate a profit. Consequently the requirements of the Third Energy Package can undermine the incentive to invest in new gas transportation infrastructure or to expand existing gas transportation infrastructure. The legal framework of the Third Energy Package recognises this problem by providing for the possibility of exempting certain major new gas infrastructure items from the requirements of unbundling and regulated third party access (under Article 36 of the Gas Directive). There is extensive precedent for granting such exemptions, which recognises the negative impact which the rules on unbundling and regulated third party access could have on gas transportation infrastructure investors. 5

Footnotes

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4

5

A directive is binding on Member States and must be transposed into national law by each Member State, subject to leaving to the relevant national regulatory authority the discretion to choose the form and the methods for implementation. A regulation is directly applicable in all Member States without the need for transposition into national law. See, for example, the exemptions granted to the Trans Adriatic Pipeline (TAP) gas pipeline, https://www.tap-ag.com.

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Diversions and Restrictions, UKBC-GASLNGS 534049300 (2023)

Diversions and Restrictions Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 7 - Competition Law Principles Diversions and Restrictions 7-021

In the early days of the LNG business linear sales arrangements (also called “tramline trading” or “point-to-point” arrangements, reflective of the fact that an LNG cargo would simply travel from the point of liquefaction to the point of regasification, such that an LNG ship was effectively a floating pipeline) were the norm. To reinforce this, the SPA could include provisions which restricted the buyer’s ability to take delivery of the seller’s LNG at, or to transport that LNG to anywhere other than a nominated regasification facility. Such destination restriction provisions enabled sellers to compartmentalise LNG delivery markets, and inevitably had the capacity to be distortive of competition. It was no surprise therefore that these provisions eventually became the subject of anti-trust investigations and pronouncements. In obvious contrast to this, one of the popularly-recited advantages of LNG deliveries by ship is that LNG ships have the flexibility to facilitate delivery into multiple markets, in contrast with a gas pipeline which traverses fixed points. This flexibility leads to a consideration of the circumstances in which an LNG ship can be so diverted.

7-022

In the course of delivering LNG either party may require the flexibility to divert a cargo of LNG from delivery to the originallyintended unloading port to an alternative unloading port. There would be an economic incentive to effect such a cargo diversion where the party wishing to do it (which could be the seller or the buyer) has agreed a better sale price for the delivery of that LNG at the alternative unloading port. This is the principle of diversion and whilst it seems simple enough to agree mechanically it can be fraught with regulatory uncertainty. The regulatory position also differs between seller–transported and buyer-transported cargoes.

7-023

From the seller’s perspective, under a DES-based SPA (32-006) the first option in achieving such a diversion is to do it regardless of the buyer’s expectations under the SPA and to assume whatever liability the SPA prescribes for a shortfall (unless the seller has the benefit of a deliver or pay mechanism—19-006, 32-037). The seller would ostensibly do this in exchange for securing a return from the diversion sale which outweighs the applicable shortfall remedy under the SPA. This might, however, expose the seller to a claim by the buyer for whatever liability flows under the SPA for wilful misconduct (36-008), or to the risk that (ultimately, depending on what quantities of LNG are so diverted) the buyer’s right to terminate the SPA for the seller’s failure to deliver LNG is triggered, and in any event the seller might not welcome the reputational damage which might result from being known to have undertaken such a course of action. As an alternative the seller might persuade the buyer to agree to effect a diversion in exchange for a pre-agreed division of the benefits resulting from that diversion.

7-024

From the buyer’s perspective under a DES-based SPA, because the buyer is the non-transporting party then the buyer will not be in a position to force the diversion other than as a matter of contract. Thus, the buyer would have to negotiate the diversion with the seller, and the seller might need to be incentivised to do so (not least since the seller still holds title to and custody of the cargo, up to the unloading port, and so a diversion would in effect be a modification to the contract). The position alters in the buyer’s favour in an FOB-based SPA however, where the buyer is the transporting party. Because the sale and purchase of the particular cargo has already been completed (subject to invoicing and payment—20-002) when the buyer takes that cargo away from the loading port, and because title to and custody of the LNG has transferred from the seller to the buyer, then there

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Diversions and Restrictions, UKBC-GASLNGS 534049300 (2023)

is less obviously a diversion in respect of which the buyer might require the seller’s assistance or involvement. Accordingly the buyer could be reluctant to share any part of the resultant benefits with the seller. 7-025

In order to regulate the whole business of diversions the SPA could recite the following provisions between the seller and the buyer: (i) Destination clauses. The SPA might seek to prohibit a buyer from selling, or procuring the sale, of the LNG which is to be delivered to the buyer at the principally-identified unloading port in a DES-based sale, or which is to be taken from the loading port to a principally-identified unloading port in an FOB-based sale, for delivery to any alternative unloading port. Thus, the buyer would be prohibited by what is called the “destination clause” in the SPA from having the LNG which is due to be delivered to it at a principally-identified unloading port taken to any other unloading port (at least, not without the seller’s consent) and any attempt by the buyer to do so would result in a breach of contract by the buyer. The destination clause would not be difficult for the seller to enforce in a DES-based SPA because the seller controls the necessary LNG shipping but would as a practical matter be more difficult for the seller to enforce in an FOB-based SPA, where the buyer has taken control of the LNG shipping after the cargo has been loaded and title to and custody of the LNG has transferred from the seller to the buyer. Destination clauses are effectively territorial restrictions, intended to preserve market separations for LNG sellers.

7-026

7-027

(ii) Benefit sharing. The manner of the sharing of the benefits which accrue to a party in consequence of a diversion which is effected could also be determined as a matter of contract between the parties in the SPA (where the parties have agreed that some sharing of the benefits is appropriate—which might not always be the case). A benefit sharing mechanism which is particularly punitive to the buyer could disincentivise the buyer from seeking a particular diversion opportunity and could have the effect (if not the objective) of being a form of destination clause in its own right, and so it will be apparent that replacing destination clauses in an SPA with a particularly onerous benefit sharing mechanism represents no real improvement on a conventional destination clause. Benefit sharing mechanisms generally suffer from poor definition of how they are intended to operate, with a split of additional profits being simple enough to state in principle but not always being so clearly calculable in practice. Benefit sharing mechanisms also require some careful consideration of applicable confidentiality provisions because of the reporting obligations which they inevitably entail (in respect of the diversion opportunity) as a condition of properly applying the mechanism. Destination clauses and benefit sharing mechanisms can be agreed between the parties to an SPA as a matter of contract and the product of commercial negotiation, but they can cause regulatory concern, depending on the market into which gas (or LNG) is supplied. Over the last few years the European Commission has carefully examined destination clauses (and benefit sharing mechanisms which have the object or the effect of achieving the same result, based also on the distinction between raw and net profit shares 6 ) if these provisions serve to partition the intended free market for gas in the European Union, by preventing a buyer of LNG from undertaking a resale which it would otherwise wish to do. This is not to say however that all such provisions will always be offensive, and so each SPA must be reviewed on an individual basis. In 2000 the European Commission began to investigate destination clauses and other territorial restrictions in the context of how trade in the European Union was being affected and required commitments from various upstream suppliers regarding the deletion of existing and further territorial restrictions (in respect of LNG and pipeline gas deliveries). This process concluded in 2007 with an agreement between the European Commission and the Algerian state gas company Sonatrach 7 regarding the removal of territorial restrictions in contracts for the supply of gas and LNG into the European Union, and agreement that benefit sharing mechanisms would only be appropriate for LNG sales where title has not transferred to the buyer. 8 To summarise the various opinions of the European Commission, destination clauses generally are not acceptable and benefit sharing mechanisms are not acceptable where they seek to apply after title to the LNG has transferred from the seller to the buyer (e.g. in an FOB-based sale). Correspondingly, benefit sharing mechanisms could be acceptable where title to the LNG

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Diversions and Restrictions, UKBC-GASLNGS 534049300 (2023)

has yet to transfer from the seller to the buyer (e.g. in a DES-based sale). This is, however, a consequence of the application of EU competition law rules and should not affect the wording of such provisions in a SPA which does not have a measurable European dimension. In 2017 the Japan Fair Trade Commission (JFTC) published a survey of LNG transactions involving Japanese buyers. The survey took the view that destination clauses and benefit sharing mechanisms in FOB-based sales would ostensibly be anticompetitive, but could be sustainable (subject to certain conditions) in DES-based sales. The JFTC survey, whilst not having the force of law, offers a useful insight to how the Japanese regulatory landscape could be applied to interpreting the effectiveness of an SPA.

Footnotes 6 7 8

In a net profit share the benefits are divided between the seller and the buyer after the deduction of diversion costs, so that those costs are effectively borne between the parties; in a raw profit share the buyer bears the diversion costs from its share of the benefits. Commission press release, “Commission and Algeria reach agreement on territorial restrictions and alternative clauses in gas supply contracts”, (IP/07/1074), 11 July 2007. The issues are considered in more detail in J. Atkin, “Destination Flexibility in LNG Sales Contracts” (2020) 3 OGEL 18.

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Long Term Contracts, UKBC-GASLNGS 534049302 (2023)

Long Term Contracts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 7 - Competition Law Principles Long Term Contracts 7-028

From a seller’s perspective the perceived need for gas to have an identified market to go to (and an identified method of being transported to that market) before it can be commercialised, in comparison with crude oil which can be produced in isolation of a committed market outlet, has historically meant that gas projects have necessarily been underpinned by a long-term, stable contract with a buyer in order the make the project viable. Equally from the buyer’s perspective, a long-term contract might be regarded as essential in order to guarantee the security of supply of a commodity which is not as fungible and as freely available as a barrel of crude oil. Thus, a long-term contract gives security of demand to the seller of gas and gives security of supply to the corresponding buyer. In the early days of the LNG industry, long term (typically 20 years or more) contracts between highly rated counterparts were needed in order to underpin the costs of development of new gas liquefaction facilities.

7-029

The traditional need for long-term contracts in order to sell and buy gas has been undermined by a number of factors: increasingly flexibility in gas markets, including the emergence of spot markets and trading arrangements; the growth in gas storage opportunities; increasing levels of energy market liberalisation which results in greater ranges of potential commercial opportunity (including growth in TPA rights; proliferation in spare gas pipeline and LNG ship carrying capacities; and a generally increased availability of gas quantities. These factors, both in isolation and when taken together, can lead to a reevaluation of the traditional long-term contract paradigm, and competition law authorities might take a view on the acceptability of long-term contracts in a particular market. 9 In December 2021, the European Commission issued a paper which called for the prohibition of long-term contracts for unabated gas supply beyond 2049, ostensibly as part of a package of legislative proposals which were intended to decarbonise the energy market of the European Union. 10

Footnotes 9 10

A review of the impact of competition law on gas projects can be found in “Long-Term Natural Gas Contracts and Antitrust Law in the European Union and the United States”, published by Dr. Kim Talus as an AIEN research paper in September 2011 (available at https://www.aien.org). See https://europa.eu/newsroom/ecpc-failover/pdf/speech-21-6910_en.pdf.

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Introduction, UKBC-GASLNGS 534049305 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 8 - Gas in the Energy Transition Introduction 8-001

The classic gas advocacy narrative suggests that the combustion of gas is cleaner than the combustion of coal or oil, that gas is the inevitable transition fuel for the switch from coal and oil to renewable energy, and that gas is an essential supporting fuel for the inherent intermittency of renewable energy. This narrative has historically been deployed to differentiate gas from other fossil fuels and to cast gas as an essential part of the low carbon landscape of the future. Whether this narrative will be sustainable in the emerging world of energy sector decarbonisation, particularly where there is the ambition to secure a complete exit from a reliance on all fossil fuels and without differentiation between the different forms, remains to be seen. In the near term gas has a particular role to play in what is popularly described as the “energy transition” (which means, in a nutshell, the displacement of the combustion of fossil fuels by renewable energy sources). From the gas perspective the key elements which are associated with this transition relate to the role of gas in hydrogen production and to the production and promotion of clean gas and clean LNG (see below). Over the longer term a key issue for all participants in the gas sector is knowing the role which gas will play in the energy transition, and the ongoing lack of regulatory certainty presents a risk. End of Document

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Gas in Hydrogen Production, UKBC-GASLNGS 534049307 (2023)

Gas in Hydrogen Production Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 8 - Gas in the Energy Transition Gas in Hydrogen Production 8-002

Hydrogen is regarded as a clean fuel because it is emits water when combusted. To displace gas consumption, hydrogen could be combusted to generate electricity (particularly on a standby basis to make good the failure of renewable energy power generation through intermittency), could be used as a feedstock for energy-intensive industrial processes such as steel, cement and paper manufacture, and could be used as a source of energy for domestic and industrial heating. Hydrogen could also be used (in a fuel cell) as a motive power fuel for application in trains, motor vehicles, ships and aircraft.

8-003

Hydrogen is the most abundant element on earth but it generally does not occur naturally, and so it must be produced artificially by extraction from other compounds (such as water, or methane) if it is to be generated on a scalable basis. The manner in which hydrogen is produced will inevitably have some level of carbon intensity associated with it. In a descending order of clean energy: (i) Green hydrogen. This is hydrogen produced by the electrolysis of water, where renewable energy is used to power the process, and consequently this hydrogen is produced in the most climate neutral manner. (ii) Turquoise hydrogen. This is the pyrolysis 1 of methane, releasing hydrogen and separating the carbon element. (iii) Blue hydrogen. This is hydrogen produced by the reformation 2 of methane, with the associated capture of the resultant carbon emissions. That said, approximately 15 per cent of the resultant carbon is not captured and so blue hydrogen is low-carbon hydrogen production, rather than carbon-free hydrogen production. (iv) Grey hydrogen. This is hydrogen produced by the reformation of methane, but (in contrast to blue hydrogen) without capture of the resultant carbon emissions. In terms of how hydrogen is produced, the reverse order applies however. Grey hydrogen is the source of approximately 95 per cent of commercial hydrogen production today. The carbon capture technology required for the industrial scale production of blue hydrogen production is in its relative infancy, and the scalable production of green hydrogen and turquoise hydrogen has yet to commence. Principally as grey hydrogen or as blue hydrogen, gas has a key role to play as a feedstock in the major scale production of hydrogen and that looks set to continue.

8-004

Hydrogen can be transported by pipeline, 3 and could be blended with natural gas in a pipeline and a gas grid for combined transportation. Blending hydrogen for transportation in an existing gas pipeline network could facilitate the carriage of significant volumes of hydrogen, and could connect hydrogen producers and their customers without the need for additional

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Gas in Hydrogen Production, UKBC-GASLNGS 534049307 (2023)

investment in implementing purpose-built hydrogen pipeline infrastructure. Hydrogen could be stored in a depleted hydrocarbon reservoir, as a separate gas storage project (see Ch.3). Hydrogen could also be combined with nitrogen to create ammonia (sometimes called “blue ammonia”) for greater ease of transportation. 8-005

The terms of a contract for the sale of hydrogen between a hydrogen producer and a hydrogen consumer could reference the following terms (drawn from the terms of a gas sales agreement as an analogue): (i) Units of measurement and sale. There are several units of measurement for hydrogen, which could be used to be describe the sales arrangement: Weight. Hydrogen could be sold as a tonnage gas and referenced in units of metric tonnes (MT), although the more likely weight unit of sale is the kilogramme (kg), where one MT contains 1,000 kgs. Volume. Hydrogen could be sold volumetrically as a gas (in scf or in cubic metres). One MT equates to 423,300 scf of gas, and so one kg equates to 423.3 scf of gas. Calorific value. Hydrogen is combustible and could be sold by reference to its calorific value. One scf of hydrogen contains approximately 325 Btus of energy (measured gross). (ii) Price and price reviews. There is presently no spot or market price for hydrogen, so cost-plus is a possible price construction (based on a per unit gas feedstock price + per unit hydrogen production costs (fixed and variable) + margin for the producer). The buyer could also pay a price premium for certified blue hydrogen. The sales contract could also make provision for a contractuallyset hydrogen price to be re-based to a market-reflective price when such a price emerges and sufficient liquidity is proved to exist. (iii) Quality certification. The independent certification of carbon abatement in the hydrogen production process, with a guarantee of origin of the low/no carbon attributes, would be required. (iv) Seller delivery failure. A lack of market liquidity means that the substitution of alternative hydrogen supply is unlikely in the establishment of cover standard damages (19-008), so the producer’s liability could be set on the basis of the payment of liquidated damages (36-009) or unliquidated damages (with a consequential loss liability exclusion—36-008).

Footnotes 1 2

Pyrolysis is a process by which methane is thermally decomposed to release hydrogen (in a gas form) and carbon dioxide (as a solid). The principal process forms of reformation are steam methane reforming (SMR), where methane is combusted with air to create steam, and autothermal reforming (AFR), where methane is combusted with purified oxygen. SMR is the most widely-used process.

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Gas in Hydrogen Production, UKBC-GASLNGS 534049307 (2023)

3

Issues of metallurgical compatibility will be relevant in considering the use of existing pipelines and storage infrastructure for hydrogen.

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© 2022 Sweet & Maxwell

3

Abatement, UKBC-GASLNGS 534049304 (2023)

Abatement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 8 - Gas in the Energy Transition Abatement 8-006

Abatement in the context of gas or LNG sales is a term used to indicate that efforts have been made to improve the greenhouse gas (GHG) emissions profile of the gas or LNG. 4 Under this heading lie the subsets of responsibly sourced gas and clean gas or clean LNG.

8-007

Responsibly sourced gas (RSG) is gas which has been independently certified as having been produced in what is declared to be an environmentally responsible manner (by reference to meeting objective standards for factors such as associated GHG emissions, land use, water course protection and community impacts).

8-008

There is no standard definition of what constitutes clean gas or clean LNG 5 but as a term it is intended to connote gas or LNG to which various GHG abatement processes have been applied. The phrase “e-methane” is sometimes used to describe synthetic methane which is produced from the reaction of decarbonised hydrogen with captured carbon dioxide, effectively making it carbon neutral methane. Clean gas or clean LNG could be desirable to a gas or LNG producer for several reasons: to facilitate the opportunity to supply gas or LNG to a buyer which is required to comply with jurisdictional decarbonisation regulatory obligations; as a response to socio-political pressures and to meet corporate ESG (41-011) scorecard requirements; to meet the requirements of project lenders; and to realise a premium-priced commodity, where a buyer would be willing to pay a higher price for clean gas or clean LNG.

8-009

Clean gas or clean LNG could result from: (i) Reducing the carbon intensity associated with production. Gas or LNG production which benefits from demonstrable reductions in carbon intensity 6 along the value chain (by any of using responsibly sourced gas or renewable gas 7 as a feedstock, curbing flaring and methane emissions, using e-drive and renewable power sources for gas liquefaction, using LNG-fuelled LNG carriers, reducing methane emissions associated with production and transportation and applying carbon capture, utilisation and storage (CCUS) techniques to associated carbon production) could constitute clean gas or clean LNG. This sounds simple enough but issues associated with the measurement, reporting and verification of carbon intensity which is associated with gas and LNG production (see below) could in practical terms make this a difficult ambition to quantify the achievement of. (ii) Applying carbon offsets to production. A carbon offset (also called a “carbon credit”) is a tradeable instrument which represents a quantified reduction in carbon intensity in particular place or in connection with a particular activity, which can be bought from an issuing registry and then applied to offset the emissions which are associated with a gas or LNG production project. The best-known carbon offset registry is the UN Clean Development Mechanism (CDM) which was originally established under the 1997 Kyoto

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Abatement, UKBC-GASLNGS 534049304 (2023)

Protocol. There are also several independent, private, not-for-profit carbon offset registries which issue carbon offsets. 8

8-010

Some countries 9 also operate their own carbon registries. Qualifying carbon offset activities include afforestation, avoided deforestation, biomethane production, CCUS projects, other forms of GHG capture, reforestation and solar farming. Increasing efforts by gas and LNG producers over time to achieve net-zero carbon targets associated with their projects should correspondingly reduce the quantities of carbon offsets which need to be bought and retired in order to prove clean gas or clean LNG, but achieving a figure of zero for the carbon intensity associated with gas or LNG production is a practical impossibility and so carbon offsets will continue to play a role.

8-011

The production of clean gas or clean LNG through reducing the carbon intensity of the value chain will inevitably have a cost associated with it. Carbon offsets could be bought by the gas or LNG producer, the associated price of which could increase the production cost of gas LNG from the gas or LNG producer’s perspective. Reducing the carbon intensity of the value chain will be more appealing to a gas or LNG producer where the associated costs are less than the costs of purchasing carbon offsets. Whether any of these costs will be borne exclusively by gas or LNG producers, or will be passed through to buyers through an increase in prices, will remain to be seen.

8-012

Carbon accounting is becoming a regular industry requirement. There is presently not an industry-wide uniform standard for the measurement, reporting and verification (MRV) of carbon intensity which is associated with gas or LNG production (and in particular there is presently no normalised comparison basis for quantifying the length of, and the corresponding carbon intensity of, the LNG supply value chain (31-002)) but this will likely change. 10 To date, MRV standards have developed piecemeal on country, corporate or project bases, with self-certification rather than independent quantification being the norm. An LNG production project could measure carbon intensity by reference to LNG production to loading after liquefaction (in an FOB-based sale), by reference to LNG production to storage after unloading (in a DES-based sale) (also called “well to tank” (WTT)), or by reference to LNG production to final consumption of the regasified LNG (also called “full lifecycle emissions”). Deriving a standard figure for the carbon intensity of an LNG cargo prior to the point of its eventual combustion will be difficult because of operational differences in how LNG is produced, shipped, stored and regasified between different projects. However, in the UK the Department of Business, Energy and Industrial Strategy (BEIS) has formulated guidance for assessing the carbon intensity of raw fuel sources prior to combustion, 11 which suggests a figure of 0.88 tCO 2 e for each metric tonne of LNG on a WTT basis. At the point of eventual combustion after regasification, a standard figure for the carbon intensity of LNG becomes possible

however. Gas when combusted (without abatement such as CCUS) has a carbon emissions rate of 53 kg of CO 2 per mmBtu of energy. Assuming 52 mmBtu for each metric tonne of LNG, one metric tonne of LNG has direct emissions of 2.76 metric tonnes of CO 2 . Beyond the WTT measure of carbon intensity, the BEIS guidance indicates a carbon intensity figure of 3.6

tCO 2 e for each metric tonne of LNG on a full lifecycle emissions basis. This suggests that approximately 75 per cent of the CO 2 emissions which are associated with the production of LNG arise after the point of discharge from the LNG ship.

Footnotes 4

A greenhouse gas (GHG) is a gas which absorbs and emits radiant energy, trapping heat and creating a greenhouse effect in the earth’s upper atmosphere. The commonly agreed GHGs are naturally-occurring carbon dioxide, methane, nitrous oxide and water vapour, and man-made hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. Each of these GHGs has a different atmospheric lifespan and different global warming potential. GHGs are measured in tonnes of CO 2

equivalent (tCO 2 e), such that GHGs other than CO 2 are referenced back to an equivalent quantity of CO 2 to allow a baseline comparison between GHGs.

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Abatement, UKBC-GASLNGS 534049304 (2023)

5 6 7 8 9 10 11

Clean LNG is also variously referred to as “advantaged LNG”, “carbon-neutral LNG”, “decarbonised LNG”, and “lower carbon LNG”. These terms are used interchangeably and inexactly. That is, a measure of the quantity of carbon by weight which is associated with the production of a particular form of energy. No LNG export project currently proposes renewable gas (that is, biogas which has been upgraded to a quality similar to natural gas with a methane concentration of 90 per cent or greater) as a feedstock for LNG production. See, for example, the American Carbon Registry (https://americancarbonregistry.org/), Verra (formerly the Verified Carbon Standard) (https://verra.org/project/vcs-program/) and Gold Standard (https://www.goldstandard.org/). Such as China, Japan, Korea, and the Canadian provinces of Alberta and British Columbia. In November 2021 GIIGNL (the International Group of Liquefied Natural Gas Importers) launched an MRV framework, aimed at verifying GHG emissions across the entire LNG supply chain (https://www.giignl.org/framework/). https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2020.

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Contracts for the Sale of Clean Gas and Clean LNG, UKBC-GASLNGS 534049306 (2023)

Contracts for the Sale of Clean Gas and Clean LNG Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part A - General Principles Chapter 8 - Gas in the Energy Transition Contracts for the Sale of Clean Gas and Clean LNG 8-013

A contract for the sale of clean gas or clean LNG could reflect several elements: (i) Price.

The sales contract could reflect a price premium (in $/mmBtu) for gas or LNG which is below a defined tCO 2 e threshold LNG, or a price discount for gas or LNG which exceeds a defined tCO 2 e threshold. A two-tier pricing structure could also come into existence to reflect gas or LNG which does not meet defined tCO 2 e thresholds. Certain buyers could have a need for energy at the lowest cost which outweighs the necessity to pay a premium for clean gas or clean LNG. Alternatively clean gas or clean LNG could become regarded as an operational necessity, as a cost of entry to the world of being a gas or LNG producer. (ii) Representation and warranty. The sales contract could require the seller to represent and warrant to the buyer that the production of the gas or LNG has met a defined tCO 2 e standard. A breach of such a representation and warranty by the seller could be akin to a breach of a representation and warranty in respect of good title (41-030). (iii) Verification. The sales contact could specify a methodology for the necessary MRV which will be applied by the seller (including a right for the buyer to access and witness the associated calculations and measurements, in a manner akin to the verification of metering calibrations (22-004)). (iv) Substitute sources. The sales contract could require that where the seller has the ability to supply gas or LNG to the buyer from a substitution source, or from multiple sources, then that has or LNG will also meet the defined tCO 2 e standard in the sales contract. (v) Liability for failure.

The buyer’s remedies where LNG fails to meet a defined tCO 2 e standard could be the seller’s liability to pay liquidated damages (36-009) or unliquidated damages (with a consequential loss liability exclusion—36-008) to compensate for the buyer’s losses and liabilities. The buyer could have liabilities downstream to its customers for its corresponding failure (which could be compensated by the payment of a monetary amount), and the buyer could also be exposed to liability to a regulator. End of Document

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Introduction, UKBC-GASLNGS 493298580 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Introduction 9-001

This chapter addresses the provisions relating to the identification of the parties to a pipeline gas sales contract. Specific provisions relating to LNG sales contracts are considered at 32-002, although there will be some overlap between the two. A fundamental requirement of any GSA is the precise identification of the parties who will respectively sell and buy gas. Without a seller and a buyer there will not be a valid contract. The parties could be unrelated or they could be affiliated entities. There are several ways in which a seller and a buyer can be represented in a GSA, and the simple statement made above of the need to recognise these persons belies a number of sometimes complicated structural options for doing so. How this aspect of a GSA is effected also ties back to how a wider gas commercialisation project is structured. The original value of the contracting parties in a GSA could be preserved and protected through provisions managing the transfer of interests by a party, and reacting to a change of control to which a party might be subject during the lifetime of the GSA, and controlling the ability of a party to devolve its obligations under the GSA to another person. The ability of a party to meet its obligations under a GSA will be conditioned by the procurement of collateral support in respect of those obligations. The need for, and the availability of, collateral support in respect of a person will play a key role in assessing the suitability of that person to become a party to a GSA. End of Document

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Marketing and Sales Distinguished, UKBC-GASLNGS 534049308 (2023)

Marketing and Sales Distinguished Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Marketing and Sales Distinguished 9-002

Marketing is the act of finding a buyer for the produced gas, and this is quite separate to the function of selling, which is the activity of actually contracting with a buyer for the sale of the gas. Each of the parties to a gas-producing joint venture could be responsible for carrying out its own marketing prior to effecting a sale, or alternatively one of the joint venture parties could be appointed to act on their collective behalf in managing the marketing effort. Joint marketing (that is, the marketing of the produced gas entitlements of all the prospective sellers solely by one person on their behalf) is almost always excluded from the list of rights and responsibilities of the operator under a joint operating agreement. To facilitate joint marketing a separate gas marketing agreement could be entered into by the prospective sellers, appointing one person (such as the operator under the joint operating agreement) to act on their behalf. Whether joint gas sales or several gas sales (see below) would then follow on from the marketing exercise is a separate issue. End of Document

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The Single Person Seller, UKBC-GASLNGS 493298586 (2023)

The Single Person Seller Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties The Single Person Seller 9-003

In the simplest situation the seller under the GSA will be a single person:

That single person as the seller could be a state-owned entity which is entitled to sell produced gas, or could be a private company which owns the gas or which holds a concession to sell the gas. 1 The AIEN GSA (6-002), for example, envisages a single seller and a single buyer, each holding a concession to respectively sell and buy gas.

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The Single Person Seller, UKBC-GASLNGS 493298586 (2023)

A single person seller could be a gas producer or could be a marketing entity which has been specifically appointed by a gas producer to act as a shop window for the gas producer’s interests. In this circumstance there will usually be an underlying supply contract between the gas producer and the marketing entity:

The sale of gas by a marketing entity could be made by that person directly as a principal where the marketing entity has title to the gas through a supply contract, or through the marketing entity acting as the declared agent of the gas producer where the marketing entity does not have title to the gas. Agency sales structures are considered further below.

Footnotes 1

See P-05.

End of Document

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The Multiple Person Seller, UKBC-GASLNGS 493298587 (2023)

The Multiple Person Seller Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties The Multiple Person Seller 9-004

The position becomes more complicated where multiple persons directly or indirectly constitute the seller under a GSA. In any multiple person seller gas sales arrangement the precise capacity in which the seller is acting will need to be determined and appropriate drafting inserted in the GSA to reflect that capacity. Upstream gas production projects are often undertaken by several persons acting together through the medium of an incorporated or an unincorporated joint venture. The joint venture arrangements which govern the upstream activity typically apply a presumption that each upstream project participant will be responsible for the individual sale of its own produced petroleum entitlements. This would lead to a several sales arrangement with separate sellers (see below). In a several sales arrangement the sellers would ideally put in place some form of gas balancing agreement which contains an attribution arrangement (27-007) between themselves as a precursor to making several gas sales, so that imbalances between the sellers which are caused by differential lifting (that is, the lifting of gas by a seller which is greater than (an overlift) or lesser than (an underlift) that seller’s several gas entitlement can be managed. Alternatively the upstream project participants could prefer a joint sales arrangement (subject to addressing any competition law concerns which relate to the prohibition or the conditioning of the joint sale of gas by persons who, in the upstream activity, are competitors (despite also being joint venturers)), where those participants would act as joint sellers (see below). A joint sales arrangement would be a departure from the presumption of several sales which underpins the upstream joint venture arrangements, and would typically require a joint marketing agreement to be put in place between the upstream project participants as a modification to the upstream joint venture arrangements to reflect the changed gas sales model. A joint marketing agreement would regulate, for example, the ability of the sellers to act individually or collectively against the buyer in the enforcement of the GSA. The seller-side relationship could be structured by reference to the following models: (i) Separate sellers, separate GSAs. A group of prospective sellers could sell gas to a buyer on the basis that each seller would have its own separate GSA with the buyer, although the terms of the individual GSAs will be negotiated to be identical, with each GSA reciting a quantity of gas which when aggregated across the various GSAs will meet the totality of the buyer’s gas requirements:

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The Multiple Person Seller, UKBC-GASLNGS 493298587 (2023)

This model suggests the several liability of each seller to the buyer in accordance with the terms of its individual GSA. To provide a single point of contact for the administration of joint operational matters and the giving and receiving of notices across the individual GSAs there could be a representative agreement entered into between all of the sellers and the buyer (37-003). (ii) Separate sellers, single GSA. The buyer might object to the separate sellers model suggested above on the basis that a series of separate GSAs and a representative agreement is administratively too onerous to accommodate. As a reaction to this there could be a single GSA entered into jointly by all of the sellers, reciting their respective percentage interest sales commitments to the buyer: 2

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The Multiple Person Seller, UKBC-GASLNGS 493298587 (2023)

This model ostensibly suggests the several liability of each seller to the buyer, and each seller will wish this liability basis to be made especially clear in the single GSA if that is the agreed liability regime. The position of several liability could be modified by agreement between the buyer and the sellers to provide for their joint and several liability, in order to improve the overall security of supply to the buyer, which might in turn entail a separate contribution agreement between the sellers regarding the reallocation between them of their joint liability—this would be an internal matter for the sellers to address.

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The Multiple Person Seller, UKBC-GASLNGS 493298587 (2023)

To this end there could be a single GSA entered into jointly by all of the sellers for the aggregate sale of gas to the buyer on a joint liability basis:

(iii) Joint sellers, single GSA. A group of prospective sellers could sell gas jointly to a buyer under a single GSA. There could be a single GSA entered into jointly by all of the sellers, reciting their joint and several liability for the supply of gas to the buyer. (iv) Joint venture company seller. © 2023 Thomson Reuters.

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The Multiple Person Seller, UKBC-GASLNGS 493298587 (2023)

A group of prospective sellers could incorporate a joint venture company (sometimes called a “project company seller”) in which they will hold their agreed equity interests and wherein their relationship will be governed by a shareholders’ agreement and that entity, rather than its constituent shareholders, will be responsible for the sale of gas to the buyer:

The critical issue for the buyer to appreciate in this arrangement is that its contractual remedies under the GSA will ordinarily be enforceable only against the joint venture company as the seller and not against the shareholders themselves, unless those shareholders have expressly undertaken to support the commitments of the joint venture company. This realisation could lead to a demand by the buyer for collateral support in respect of the sellers’ obligations (referenced through the joint venture company) under the GSA (15-002).

Footnotes 2

See P-06.

End of Document

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Agency Sales, UKBC-GASLNGS 493298584 (2023)

Agency Sales Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Agency Sales 9-005

Another structural option for a single GSA with multiple sellers but with a single seller-side point of contact for the buyer is one whereby one of the sellers will act for itself and as the declared agent of the other sellers (as disclosed principals) in the sale of gas to the buyer: 3

Under English law the non-signatory sellers will be party to the GSA since the general rule is that a principal will be bound by, and will also be entitled to the benefit of, any contract which is entered into by an agent on a principal’s behalf which is within the scope of the agent’s authority. Suitable agency wording and a declaration of the authority of the nominated agent will be needed in the GSA. The buyer might also require proof of the seller’s authority to act as agent (which might be appended to the GSA). In this agency sales structure the GSA could apply the joint or the several liability of the sellers to the buyer, depending on what is agreed. Where a GSA is executed through the agency execution by a group of persons together making up the seller, the buyer will be concerned to know that the agency arrangement, and all it entails for the performance of the GSA (see below), will subsist for the duration of the GSA. The buyer could be troubled by an apparent (or even an unknown) breakdown in relations between the members of the seller group which undermines the agency appointment and the efficacy of the GSA. For this reason the buyer could require a right to approve any changes in the agency relationship (including its termination). 4 This could apply

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Agency Sales, UKBC-GASLNGS 493298584 (2023)

particularly where the person who is appointed as the agent seeks to transfer its interests under the GSA. This could, however, be subject to a requirement of the buyer to act reasonably in the exercise of its rights. The GSA could provide that, as a consequence of the agency execution by the persons together making up the seller, the buyer will be entitled to enforce the GSA only against the agent (and not against the co-sellers), and that only the agent (and not the co-sellers) will be entitled to enforce the GSA against the buyer. 5 This would be an administrative provision, in the interests of providing a central point of liability in the GSA, and would be without prejudice to the underlying rights and liabilities of all of the persons together making up the seller, where those rights would be asserted through, and the liabilities would be claimed against, the agent by a form of derivative responsibility for the co-sellers. Alternatively, the GSA could provide that, despite the agency execution by the persons together making up the seller, the buyer will be entitled to enforce the GSA directly against any of the agent and the co-sellers, and that any of the agent and the co-sellers will be entitled to enforce the GSA against the buyer. 6

Footnotes 3 4 5 6

See P-07. See P-08. See P-09. See P-10.

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Buyer-Side Structures, UKBC-GASLNGS 493298581 (2023)

Buyer-Side Structures Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Buyer-Side Structures 9-006

Much of what is said above in respect of how seller-side structures can be created under a GSA will apply equally to the establishment of the buyer side of the equation under a GSA and does not need to be repeated at length here. Suffice to say that there could be: (i)a single buyer (which could be a state-owned entity which is entitled to buy gas, or which could be a private company holding a concession to do so); (ii)a joint venture company buyer (which could then on-supply the purchased gas to its shareholders); (iii)a series of separate but identical GSAs with a group of buyers, each having individual purchase obligations from the seller; (iv)a single GSA with a group of buyers, each having several purchase obligations to the seller; (v)a single GSA with a group of buyers, together having a joint purchase obligation to the seller; or (vi)an agency purchase by a single buyer acting for itself and as the declared agent of named other buyers in the purchase of gas from the seller (whether on a joint or a several liability basis between all of the buyers). Where a GSA is entered into by multiple persons who together constitute the seller or the buyer as outlined above, the GSA will need to manage carefully the requirement that an act or omission by one of those persons which triggers a termination right in favour of the other party (39-005) is applied solely in respect of the GSA as it relates to that person and not to the entirety of the group of persons. End of Document

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Changes to the Parties, UKBC-GASLNGS 493298585 (2023)

Changes to the Parties Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Changes to the Parties 9-007

Changes to the identity of the parties during the lifetime of a GSA could occur in a number of ways. A change could be instigated at the behest of a party, such as where a party wishes to transfer its interests in a wider gas commercialisation project which includes the GSA, or a change could be imposed by some form of external intervention, such as where a party’s parent entity undergoes a change of control which affects the ownership of that party. The GSA should be careful to address the scope for these changes to take place, in the interests of maintaining (as far as possible) the integrity of the original contractual arrangements for the sale of gas. The ability of a party to transfer its interests under a GSA (whether by an assignment of rights or by the complete transfer of rights and obligations) to another person during the currency of the GSA is considered further in Ch.38. A change of control of a party during the currency of the GSA is not a change of the party itself but such a change could affect the other parties, and this is considered further at 38-008. The ability of a party to devolve its contractual position to a third party, such that the third party is a de facto party for at least some part of a GSA, is considered further in Ch.38. Where a party has relied on the assistance of third party lenders to meet its share of the costs of development of the underlying gas commercialisation project (5-013) the lenders could also have rights to step in to a GSA (15-006) in order to take control of that party’s interests. End of Document

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Enurement, UKBC-GASLNGS 493298579 (2023)

Enurement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Enurement 9-008

The GSA will usually provide that the benefit of the GSA will pass or, in the customary vernacular, will enure, to a party’s successors in title or to a party’s lawful assignees, whether the existence of such an assignee is enabled by applicable law or by compliance with the transfer provisions of the GSA, and also that the definition of a party for the purposes of the GSA will be deemed to include that party’s successors in title and its lawful assignees. End of Document

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Affiliates, UKBC-GASLNGS 493298583 (2023)

Affiliates Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 9 - The Parties Affiliates 9-009

A GSA could recite the concept of an affiliate of a party in a number of places, including in respect of affiliate sales, the scope of a letter of comfort (15-006), confidentiality disclosures (41-003) and transfers of interests (Ch.38). A GSA could create the definition of an affiliate (based on the level of control which is exercised over a party by, or which is exercised by a party over, another entity, or where a party and an entity are subject to common control), or reliance could be had upon an existing statutory definition of an affiliate. End of Document

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Introduction, UKBC-GASLNGS 493298589 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term Introduction 10-001 This chapter addresses the provisions relating to determining the term (that is, the duration) of a pipeline gas sales contract. Specific provisions relating to LNG sales contracts are considered at 32-004, although there will be some overlap between the two. This chapter assumes that a GSA will exist for a defined period of time and so relates to any gas sales arrangement other than a spot sale. The legal and commercial effectiveness of a GSA after its execution by the parties will be set by a combination of the application of any conditions precedent and the determination of a start date, with a possible additional liability of a party for a failure to be ready to perform on the start date. The circumstances in which a GSA could come to an end are addressed separately in Ch.39. End of Document

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The Basic Term, UKBC-GASLNGS 493298588 (2023)

The Basic Term Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term The Basic Term 10-002 The period from the date when the GSA is executed between the parties (often called the “execution date”) until the scheduled date of expiry of the GSA is often called the “basic term”. That basic term could be ended before the scheduled expiry date of the GSA by an event of earlier termination. The start date, being, essentially, the date upon which the key commercial activities of the GSA get underway (see below), will usually occur at a later date than the execution date. The period from the start date until the scheduled expiry date of the GSA, when gas flows from the seller to the buyer, is often called the “delivery period”. The delivery period could be further characterised by the application of defined ramp up, plateau and decline periods (12-004). These are more measures of gas delivery quantities than they are chronological periods. A GSA could be constructed so that it continues in force until terminated by either party, without a defined date to signal the end of a defined basic term. In this case the GSA could be called an “evergreen contract”. From the seller’s perspective the GSA would ideally subsist for the effective lifetime of the seller’s gas production (and any transportation) facilities and/or gas reserves, in order that they can all be fully utilised. This lifetime can be difficult to predict accurately, however, because the operability of such facilities in practice often exceeds the originally anticipated design life, since such facilities can be refurbished and because the prediction of gas reserves (12-020) is often imprecise. Such a duration might also be too long for a buyer. The more common solution therefore is to express the GSA to subsist for a defined maximum basic term. 10-003 The scheduled duration of the basic term will often be dictated by the economics of the seller’s side of the overall gas commercialisation project. A heavy capital investment by the seller in gas exploration and gas production (and transportation) infrastructure will require the security of a long-term revenue stream which is sufficient to service the debt component and pay back the third party lenders where the development of that infrastructure has been financed with their assistance (5-013), and which thereafter is sufficient to provide a satisfactory period of economic return to the seller. The buyer might also require the security of a committed supply of gas in order to satisfy its side of the gas project and on this basis the buyer might have certain expectations as to the duration of the basic term. The parties should also recognise the possibility that applicable law may have a say in the duration of the GSA. Certain principles of competition law could be applied in order to regulate against what might be perceived to be an overly-long GSA which has the capacity to distort market economics. 10-004 A GSA could provide that the basic term can, in certain circumstances, be extended for a specified further period. The principle of extension might apply, for example, to enable the buyer to recover accrued and unrecovered make up entitlements (17-002) or undischarged shortfall price discount entitlements (19-002), or an extension could simply be a matter of commercial agreement between the parties. It is usually the case that the basic term of the GSA cannot be unilaterally extended by only one of the parties. It will also always be open to the parties to agree a further extension to the basic term if they so agree and so this prospect does not need to be expressly recited in the GSA, although such a provision often appears in the GSA as a matter of record.

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The Basic Term, UKBC-GASLNGS 493298588 (2023)

An extension to the basic term is of particular attraction to the seller in a depletion-based contract (6-005) where there are gas reserves remaining at the end of the basic term which might not be sufficient to be commercialised by the seller in a fresh GSA and so which are ideally suited to being run down by the seller in a continuing sale of gas to the buyer. Whether the existing commercial terms of the GSA will apply during the extension period, or whether some or all of those terms will be reopened for negotiation between the parties, notably the contract price (13-001), will be a matter to be addressed in the GSA. Any extensions to the basic term will also need to be matched by sufficient unexpired time under any concessions which the seller or the buyer may be party to and also by an equivalent extension to any gas transportation arrangements, in order that the entire gas commercialisation project continues to be viable. This can be a complicated exercise to coordinate. End of Document

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Conditions Precedent, UKBC-GASLNGS 493298592 (2023)

Conditions Precedent Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term Conditions Precedent 10-005 A GSA could be executed in order to show an early commitment between the parties, which in turn could be used to secure third party lender finance (5-013), but despite that execution the GSA could be qualified where the buyer or the seller wish to apply certain conditions precedent to a realisation of the full effectiveness of the GSA. Where such conditions precedent are provided for then, notwithstanding the execution of the GSA, certain of the GSA’s provisions will not become legally effective until the defined conditions precedent have been fulfilled (or have been waived —see below). The provisions of the GSA which are principally intended to be suspended from operation in this manner are the essential commercial conditions of the relationship between the parties, such as: the buyer’s take and pay or take or pay commitment (16-003, 16-004); the seller’s obligation to deliver gas (11-007); the seller’s liability for a failure to deliver gas (19-002); and either party’s obligation to expend money on facilities development (23-002). From an economic perspective the basic philosophy behind the inclusion of conditions precedent in a GSA is that the exposure of the parties to legally-enforceable performance obligations (with the corresponding liabilities for a failure to perform) and to the obligation of the parties to embark upon the effort and expense of facilities development will be postponed until it is clear that the GSA is capable of being fully performed as an operative contract. If the agreed conditions precedent are not fulfilled or waived and the GSA is terminated (see below) then at least the parties will have avoided what might prove to be the needless effort of developing the necessary facilities and will have saved themselves from certain avoidable costs. The conditions precedent formulation does not suspend the effectiveness of the entire GSA. Many other key provisions of the GSA (e.g. relating to the management of transfers (Ch.38), options for dispute resolution (Ch.40), obligations of confidentiality (41-005), governing law (41-013) and the giving and receiving of notices (41-019)) will be expressed to become legally effective upon execution of the GSA, in the interests of ensuring that the GSA comes into force to the extent that it needs to in order to be an operable contract, and that at least some minimum degree of obligation is imposed between the parties. Care should be taken when drafting a conditions precedent formulation not to render the GSA totally ineffective at the outset. 10-006 If all of the conditions precedent are not satisfied (or waived, usually by the party entitled to the benefit of the protection afforded by a particular condition precedent but sometimes by the consent of both parties in the case of conditions precedent which are essential to both parties) by a defined longstop date then the GSA will usually be terminable. This termination could be an automatic event or termination could be effected on notice, at the election of a party which is entitled to the benefit of the unfulfilled condition precedent or by the agreement of all of the parties where they regard the satisfaction of a particular condition precedent to be critical. The English courts have suggested that even where there is no such express termination right a contract could automatically cease to have legal effect, depending upon the criticality of the condition precedent to the commercial relationship between the parties. 1 Whether termination of the GSA should permit a party’s right to claim damages for any losses which were incurred by that party because of another party’s failure to take steps to fulfil a condition precedent, depending on the extent to which the GSA creates an enforceable obligation regarding the fulfilment of conditions precedent (see below), should be considered.

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Conditions Precedent, UKBC-GASLNGS 493298592 (2023)

The date upon which all of the conditions precedent are satisfied (or waived) is often called the “effective date”, and on this date the GSA will become fully operative between the parties. The GSA could oblige the parties to discuss and to coordinate their respective ongoing efforts towards satisfaction of the conditions precedent. 10-007 A particular condition precedent could depend entirely on another person for its performance, and this performance could be beyond the control of the parties to the GSA. Alternatively, the satisfaction of a particular condition precedent could be within the control of a party. The GSA could impose an obligation upon the parties to ensure that such a condition precedent is fulfilled. This could be an absolute obligation, which in turn could be subject to force majeure relief (35-001) in favour of a party which has failed to perform, or it could be qualified (such as a reasonable endeavours obligation—41-020). The GSA might further provide that a party which is obliged to fulfil a condition precedent is entitled to the provision of reasonable assistance from any other party in doing so. Typical conditions precedent which might be considered in a GSA include the following: (i) Consents and approvals. The securing of critical consents, permits and approvals, which in the interests of greater certainty ought to be specified in detail in the GSA rather than left to a general description. (ii) Final investment decision. A final investment decision (FID) represents the final (and ordinarily irrevocable) decision of a party, or a group of parties, to a GSA to launch the underlying gas commercialisation project, and is often the critical point of progression in the project. The FID could come sometime after a (conditional) GSA has been executed, but the (conditional) GSA could be necessary to enable the FID to be taken. (iii) Financing. The securing of financing for meeting the costs of a party’s commitments in relation to the GSA, which could be satisfied by the execution of certain financing agreements, or even by the first drawdown of funds under those financing agreements. (iv) Other contracts. Confirmation that certain other arrangements in support of the overall gas commercialisation project (such as downstream contracts for the resale of gas or regas in the case of the buyer, other contracts for the sale of gas in the case of the seller, arrangements for the transportation of gas in the case of the party responsible for procuring transportation or the provision of collateral support) have been executed and may even have become unconditional themselves, where they contain their own conditions precedent. Care needs to be taken in structuring conditions precedent between multiple project contracts that a condition that another contract has become unconditional is not repeated throughout all the contracts, such that a situation of insoluble circularity is created and the overall gas project struggles to become unconditional. (v) Facilities. The obligation of a party to construct facilities for the proper performance of the GSA (23-002) might be expressed to be a condition precedent, although the sequencing of gas sale and purchase and transportation commitments means that the condition precedent event would typically be the issue of a notice to proceed to the contractor under the contract for the construction of those facilities, rather than that completion of the construction activities is achieved (with the additional possibility of late start liabilities (see below) to apply in respect of a failure to complete the necessary construction). (vi) Other. The seller might be required to provide to the buyer an initial reserves report, prepared by an independent petroleum engineer, which confirms the existence of sufficient reserves of gas to enable the performance of the GSA (12-020). This might also be accompanied by a report which attests to the existence of the necessary deliverability (11-012) in respect of the GSA.

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Conditions Precedent, UKBC-GASLNGS 493298592 (2023)

10-008 In summary, the conditions precedent formulation connotes a requirement that at least part of the GSA has become binding upon the parties on the date of its execution but that the GSA as a whole will become terminable if a defined condition precedent is not fulfilled or waived by a certain date. This formulation could also be described as a combination of conditions precedent, in respect of the parts of the GSA which will only become binding if the specified conditions precedent are fulfilled or waived, and conditions subsequent, in respect of the parts of the GSA which become binding upon the execution of the GSA but which may cease to be so in consequence of the right of the parties to withdraw from performance of the GSA as a whole where a termination right is applied. There is a sensible balance to be struck between inserting conditions precedent in the GSA in order to protect the parties from being obliged to undertake the commitments which the GSA creates without the support of other critical components of the overall gas commercialisation project and ensuring that the GSA becomes unconditional and fully effective at the earliest possible date in the interests of certainty. In order to achieve this balance the agreed conditions precedent should be limited in number to those which are genuinely essential for the fruition of the project, and which should be clear and capable of fulfilment with relative certainty and capable of being satisfied within a relatively short time frame after execution of the GSA but before the parties have undertaken any significant expenditure in support of their respective commitments. Conditions precedent will import uncertainty into the effectiveness of a GSA 2 and so the obvious formulation to consider is the satisfaction of as many of the anticipated condition events as possible before execution of the GSA in order to have an unconditional GSA. This might be the counsel of perfection, however, and could be unachievable in practice because of the potential complexity of an overall gas commercialisation project. As an alternative a GSA could provide for the responsibility of a party to procure the execution of other project contracts or to perform other obligations after the execution of the GSA, without those other contracts or obligations being made the subject of conditions precedent. Such a responsibility would create an actionable liability against the responsible party, giving a claiming party a right to claim damages, and possibly even to terminate the GSA (39-005) if the responsible party fails to meet its obligations (subject to the availability of force majeure relief).

Footnotes 1

2

See Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209; [1998] C.L.C.1275 HL, where the failure of the seller to enter into an allocation agreement as required by a condition precedent to a GSA by the scheduled date for the first delivery of gas was regarded as sufficiently damaging to the prospects for the proper performance of the GSA that the GSA would be deemed to have terminated automatically. This was so notwithstanding the absence in the GSA of a defined date by which the allocation agreement was to be entered into, and the lack of an express right to terminate the GSA on the grounds of an unfulfilled condition precedent. See Venture North Sea Gas Limited v Nuon Exploration & Production UK Limited [2010] EWHC 204 (Comm) for an illustration of how a failure to fulfil what appeared to be relatively innocuous condition precedent derailed an entire intended commercial transaction.

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The Start Date, UKBC-GASLNGS 493298593 (2023)

The Start Date Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term The Start Date 10-009 Although a GSA will become legally effective upon the execution date, subject in significant part to the application of any conditions precedent (see above), the GSA will typically also recite a later start date, upon which the critical commercial obligations of the parties will come into force. Upon the start date the buyer’s right to nominate gas for delivery and the buyer’s take and pay or take or pay commitment will become effective. Equally, upon the start date the seller’s obligation to deliver gas and the seller’s liability for a delivery failure will come into force. The primary concern of the buyer should be to ensure that its take and pay or take or pay commitment does not come into force before the buyer is physically or commercially ready to take gas in the satisfaction of that commitment. The seller’s equivalent concern should be that its obligation to deliver gas (and so its exposure to a liability for a delivery failure) does not commence before the seller’s gas production (and any transportation) facilities are operational. Consequently both parties will have a keen interest in agreeing how the start date is determined. 10-010 The start date could be determined as a fixed date in the GSA, whether in itself or as a date which is set to occur on a defined number of days after the end of an agreed event (such as a commissioning period—see below). Alternatively there could be a flexible mechanism in the GSA to determine the start date which enables the parties to coordinate their respective activities such that the seller is able to deliver gas and the buyer is able to take delivery of gas on a date which best suits them both. Under such a mechanism, sometimes called a “funnel mechanism” or a “window mechanism”, the start date will be arrived at through a series of stepped progressions, with specified back-stop dates. One of the parties will be responsible for nominating dates through these progressions, subject to dialogue with the other party. This mechanism enables a start date to be determined with certainty but also gives the parties some flexibility in the final scheduling of their respective commitments. A GSA might provide that the start date is deferred by a period which corresponds to the duration of any period of force majeure or other event which has prevented a party from undertaking its necessary obligations ahead of the start date. Alternatively, the start date could be immovable and the liabilities of the parties for a failure to be ready to perform their respective obligations on the start date could be determined accordingly (subject to the availability of force majeure relief). End of Document

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Commissioning, UKBC-GASLNGS 493298591 (2023)

Commissioning Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term Commissioning 10-011

Commissioning is a discrete operational activity (considered in more detail at 23-006) which could also play a role in determining the timings of a GSA. A GSA could create an identified commissioning period in which the defined activities of commissioning take place, where commissioning is defined by time, rather than by quantities of gas. The completion (or the deemed completion) of the commissioning period could be the trigger for determining the start date (see above). End of Document

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Late Start Liability, UKBC-GASLNGS 493298594 (2023)

Late Start Liability Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term Late Start Liability 10-012 Because the start date represents such a critical point in the seller/buyer relationship (see above) the GSA could prescribe a greater liability for the failure of either party to be ready to perform its obligations on that date than is prescribed generally under the GSA for a party’s particular performance failure. The test for the readiness of a party to perform its obligations on the start date could be determined by reference to the satisfaction of a specified test for specified facilities over a specified period of time, with recourse to an independent expert (40-004) in the event of a dispute between the parties as to whether the test has been satisfactorily performed. The seller could be reluctant to have an exposure to make a take and pay or a take or pay payment (16-003, 16-004) as the sole liability of the buyer for an inability to be ready to take delivery of gas on the start date because the seller could have to wait until the end of the contract year in order to determine and be able to recover that payment (unless the GSA imposes a payment liability which is more frequent than annual). Furthermore, because the buyer could subsequently recover its position through the make up mechanism (17-002) then there is arguably less of an incentive for the buyer to be ready to take delivery of, and to pay for, gas on the start date. Correspondingly, the buyer could be reluctant to rely on the seller’s exposure to a remedy for the seller’s failure to deliver gas which is based on a discount to the price of subsequent gas quantities (19-008) since this remedy offers no immediacy of monetary recovery to the buyer and could offer no recovery at all to the buyer if the seller’s inability to perform on the start date thereafter escalates to a total failure to deliver gas without the protection afforded to the buyer by a cash-out or a gasout mechanism. 10-013 The parties might therefore consider whether they should each assume in the GSA a greater liability to each other for a particular failure to be ready on the start date. As a starting point for consideration this greater liability could take the form of an obligation of the party which is not ready to pay some form of liquidated damage to the other party, measured as a defined monetary sum for each day of delay. What constitutes a valid liquidated damages formulation is considered separately at 36-009, and the GSA would need to be careful to justify the late start liability such that it is not at risk of being impugned as a penalty. In a take or pay-based GSA the buyer could reject the suggestion that it is required to pay liquidated damages on this basis because for the buyer to be so liable would be to suggest that the buyer is liable for a breach of contract for a failure to take delivery of gas. This runs counter to the established philosophy that the take or pay commitment does not establish a liability of the buyer for a failure to take delivery but rather that it represents an optional, alternative method of contractual performance for the buyer. Consequently, it might be the case in the GSA that the buyer will not have a liability for an inability to be ready to take delivery of gas by the start date beyond the commencement of its take or pay commitment. In a take and pay-based GSA (16-003) there is a payment-based sanction for the buyer’s failure to take delivery of gas when required, and an additional layer of a liquidated damage for a specified late start might be more defensible. The seller could argue that the seller’s exposure to whatever remedy is provided to the buyer under the GSA for the seller’s delivery failure (19-002) represents a sufficient reason for the seller to wish to be ready to deliver gas on the start date. Furthermore, if upon the start date the seller is unable to deliver gas then the seller will be deprived of the revenue stream which would otherwise accrue from gas which is delivered. The seller will argue that these factors, when taken together, will give the seller a more than adequate incentive to be ready to deliver gas on the start date, and that the additional incentive of a liquidated damage liability will be unnecessary.

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Late Start Liability, UKBC-GASLNGS 493298594 (2023)

10-014 A GSA might provide that for the seller’s failure to be ready to deliver gas on the start date the seller’s liability to a shortfall price discount will be increased by the application, for a defined period, of an enhanced level of discount (often called “super shortfall”). 3 The exposure of the seller to a liability for super shortfall should give the seller a greater incentive to be ready to deliver gas on the start date, but the same drawback applies as for the ordinary shortfall price discount remedy in that it will be of little value to the buyer if the seller’s inability to deliver gas is total. For this reason the buyer might insist on the liability of the seller to pay liquidated damages for a failure to be ready to deliver gas on the start date, with the seller thereafter reverting to the usual shortfall price discount. Some care needs to be taken in the construction of this super shortfall remedy. The customary remedy for a seller’s delivery failure is often predicated on the basis that it constitutes a form of liquidated damage which is payable by the seller to the buyer for the seller’s failure, and in keeping with the fundamental principle of a liquidated damages provision the validity of the intended commercial purpose must be defensible (36-009). If this determination has resulted in an adequate remedy for a seller’s delivery failure then the additional super shortfall component could be difficult to defend on the same basis. As a further alternative, a GSA might settle the liability of the seller for a failure to be ready to deliver gas on the start date by reference to something of a half-way house between making a payment and the shortfall price discount. Under such a hybrid formulation the seller’s exposure to the shortfall price discount will commence on the start date; if the seller’s inability to deliver gas persists beyond a specified period then at that point the buyer can cash-out the accrued shortfall price discount and thereafter the customary shortfall price discount will continue to apply. A GSA might also contain a right of the buyer to terminate the GSA for the seller’s failure to deliver gas for a defined period and/or to a defined quantity after the start date and, correspondingly, a right of the seller to terminate the GSA for the buyer’s failure to take delivery of gas for a defined period and/or to a defined quantity after the start date (39-005). Where a seller does accept an additional layer of liability for its failure to be ready to deliver gas on the start date the seller might also argue that correspondingly it should be given an early start incentive such as a premium (e.g. equivalent to the daily rate of the late start liquidated damages) for each day that it is ready to deliver gas ahead of the start date. The obverse could apply in favour of the buyer, with the application of a price discount if the buyer is ready to take early delivery of gas.

Footnotes 3

See P-11.

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The Chronology of a GSA, UKBC-GASLNGS 493298590 (2023)

The Chronology of a GSA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 10 - The Term The Chronology of a GSA 10-015 In a spot gas sale (6-012) there will typically be an execution date and no provision for conditions precedent, a commissioning period or a later start date. Otherwise, the lifetime of a GSA could be expressed diagrammatically by reference to the following dates and periods:

The duration of a GSA could be driven by the notion of a contract year. This could be a calendar year which runs from 1 January to 31 December or a year which runs for a non-calendar year period (e.g. from 1 October to 30 September, as pipeline-supplied gas contract years have historically run in the UK in reflection of the seasonal swing of gas volumes between summer month demand profiles (April to September) and winter month demand profiles (October to March)). Where the contract year runs for a calendar year and where the execution date or the start date (see above) occurs on a date which is part way into a calendar year then the GSA will usually provide that the first contract year will cover the period from the execution date or the start date, whichever is taken to signal the effective start of the GSA, to the end of the calendar year in which the execution date or the start date occurs, and the last contract year will cover the period from the start of the calendar year to a defined anniversary of the execution date or the start date. Although each of these contract years will subsist for less than a full calendar year they are regarded as proper contract years and any rights and responsibilities which would otherwise apply to a full calendar year will be apportioned proportionately to them, either by implication or (preferably) by express provision. A GSA might also recite the chronological unit of a contract month, which will be calendar months within the contract year and with similar provision for the determination of part months where the execution date or the start date falls other than at the start of a calendar month. Within a contract month the GSA might be further broken down into a week and a week might be broken down into individual days. The buyer and the seller will define the required units of time for the operation of the GSA (including a gas day, where such a day begins at midnight and runs for 24 hours and each week begins at midnight on a Sunday), such as for the purposes of the gas nominations regime (18-002), according to a compromise between the buyer’s operational requirements and what the seller is operationally able to accommodate.

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The Chronology of a GSA, UKBC-GASLNGS 493298590 (2023)

End of Document

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Introduction, UKBC-GASLNGS 493298596 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery Introduction 11-001

This chapter addresses the provisions relating to the delivery point and delivery obligations in a pipeline gas sales contract. Deliverability is a further issue which is to be considered. Specific provisions relating to LNG sales contracts are considered in 32-006, although there will be some overlap between the two. End of Document

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The Delivery Point, UKBC-GASLNGS 493298595 (2023)

The Delivery Point Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery The Delivery Point 11-002

A GSA will specify a point at which the seller’s obligation to deliver gas to the buyer will be effected. This point will require precise definition, as will the nature of the seller’s delivery obligation. The delivery point is the place at which the custody of gas transfers from the seller to the buyer and is the pivotal point of connection between the seller’s upstream interests and the buyer’s downstream interests. The delivery point will usually be defined in the GSA as a precise geographical location and within that location as a particular point of the interface between the seller’s gas production facilities and the buyer’s gas reception facilities, subject also to imposing within that structure the intervention of any intermediate gas transportation infrastructure. The delivery point will typically be identified in the GSA by a worded description and possibly also by the addition of a schematic to illustrate any necessary further detail It may be that the delivery point is the point of connection of the seller’s gas production facilities to a pipeline which takes gas away from those facilities (with it being the buyer’s responsibility to transport gas from the delivery point), often called a “plant gate sale” or a “tailgate sale”:

Alternatively it may be that the delivery point is the point of connection of the buyer’s gas reception facilities to an incoming delivery pipeline (with it being the seller’s responsibility to transport gas to the delivery point), often called a “delivered sale”:

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The Delivery Point, UKBC-GASLNGS 493298595 (2023)

11-003

There might also be an alternative delivery point specified in the GSA where the buyer’s and/or the seller’s facilities are configured to permit this possibility, such that the seller can deliver gas or the buyer can take delivery of gas at an alternative place. This has the advantage to the seller of reducing the risk of default in delivering gas if there is a problem with delivering gas at the principal delivery point and it also enhances the overall level of the deliverability of gas to the buyer. Such a delivery formulation assumes that a principal delivery point is identified in the GSA, with an alternative delivery point (or points) identified (whether from the outset or later, during the currency of the GSA) as a back up to that principal delivery point. A GSA could also conceive of multiple delivery points—that is, a number of named delivery points, each of which could be a principal delivery point in its own right, over which the aggregate quantities of gas required to be delivered to the buyer will be allocated. The GSA could contain a mechanism by which the buyer or the seller (depending on what is negotiated) has the right to nominate the actual delivery point from time to time. A GSA could also allocate a defined quantity of gas, such as the ACQ (12-004), between a set of multiple delivery points on a pre-determined percentage basis, with ancillary obligations, such as the buyer’s take and pay or take or pay commitment (16-003, 16-004) or the seller’s delivery failure liability (19-002), to follow the same allocation on a per-delivery point basis. The delivery point could be the point of entry into a gas transmission network. The buyer could assume responsibility for the transportation of gas through that network and will, at a separate offtake point from the network, take delivery into the buyer’s gas reception facilities of a quantity of gas equivalent to the quantity of gas which was delivered by the seller at the delivery point:

11-004

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The Delivery Point, UKBC-GASLNGS 493298595 (2023)

The delivery of gas into such a transmission network represents the right of the buyer to take delivery of a matching quantity of gas at a separate offtake point and is effectively a form of drawing right. Consequently, the network could be imbalanced by the taking of delivery by the buyer of a quantity of gas from the network which is lesser or greater than the quantity of gas which was input into the network by the seller. If this is the case then the GSA should recognise the implications for both parties. If, for example, the buyer is required to reserve capacity in the network for the quantity of gas which is to be delivered by the seller and to procure the delivery and input of a corresponding quantity of gas in order to maintain the integrity of the network then the buyer should ensure that the buyer’s remedy for the seller’s delivery failure (19-002) should be sufficient to cover any liability which the buyer may have to the network operator for imbalance charges for a failure of the buyer (because of the seller) to deliver the required quantity of gas. Alternatively it may be that the seller’s obligation is to deliver gas to the buyer at a delivery point which will be defined as the point of gas offtake from a gas transmission network:

If, in support of this commitment, the obligation to reserve capacity in, and to deliver gas into, the network is undertaken by the seller then the seller should ensure that the GSA makes good any liability which the seller may incur to the network operator for imbalance charges in consequence of the buyer’s taking of delivery of gas which is outwith the permissible amount. End of Document

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Title, Custody and Risk, UKBC-GASLNGS 493298600 (2023)

Title, Custody and Risk Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery Title, Custody and Risk 11-005

The delivery point will ordinarily be the point at which title to, custody of and the risk of loss of or damage to the gas transfers from the seller to the buyer. The delivery point will also often be determinative in the allocation of tax liabilities between the parties (41-026). Modern contracts and commercial codes have successfully separated provisions for the transfer of title, custody and risk in arrangements for the sale of goods such that these components can be considered and applied individually, and the same is true for the sale of gas. The GSA might also seek to exclude certain implied conditions which would otherwise apply under the governing law of the GSA to define the transfers of title, custody and risk (36-008). Liabilities will be allocated between the seller and the buyer by reference to either side of the delivery point. Consequently the GSA could set up a regime whereby the seller indemnifies the buyer for claims and liabilities associated with the gas prior to the transfer of title and the buyer indemnifies the seller for claims and liabilities associated with the gas after the transfer of title.

11-006

In a cross-border pipeline gas sale, where the delivery point is within the buyer’s territory and the seller has to transport the gas to that delivery point, a formulation which is sometimes used is one where title to the gas will pass to the buyer at a defined border point, being the boundary line which distinguishes the buyer’s territory from an adjacent territory. The risk of loss of or damage to (and custody of) the gas could remain with the seller up to the delivery point. The passing of title at the border point is intended to promote the suggestion that the seller is exporting gas to (but is not conducting business within) the buyer’s territory and that the buyer (not the seller) is the importer of record of the gas, which may be important to either or both parties for tax reasons. That risk remains with the seller up to the delivery point, rather than also transferring at the border point, is a commercial point for the benefit of the buyer but it could be inconsistent with, and so could jeopardise the intended operation of, the integrity of the earlier title transfer. In the case of a GSA which is governed by English law and where title is intended to transfer at an actual or a notional border point, regard will need to be had to s.16 of the Sale of Goods Act 1979 which in essence precludes the passing of title in unascertained goods (such as, for example, a commingled gas stream) until those goods have become ascertained and the divisible interests of different parties can be identified. This could create problems in relation to a multi-shipper pipeline (25-020) where several shippers hold title to commingled gas because of the continuing interests of more than one person in the gas stream at that border point. It is not readily apparent that s.16 can be excluded from application by the parties to the GSA, 1 and so the GSA should address this. This might be done by working backwards from gas quantity entitlements resulting from an allocation agreement (27-003).

Footnotes

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Title, Custody and Risk, UKBC-GASLNGS 493298600 (2023)

1

Although s.55 of the Sale of Goods Act 1979 allows the parties to a contract for the sale of goods to negative or to vary an implied right or duty, there is some authority (see, e.g., Karlshamns Oljefabriker A/B v Eastport Navigation Corp (The Elafi) [1982] 1 All E.R. 208 QBD (Comm); [1981] Com. L.R. 149 and also see Benjamin’s Sale of Goods, para.1-015, 11th edn (London: Sweet & Maxwell, 2021)) for the proposition that s.16 cannot be contracted out of. In 1995 s.16 was modified (by the Sale of Goods (Amendment) Act 1995) to introduce s.20A, which permits the creation of a tenancy in common between the owners of unascertained goods in certain circumstances—critically, on condition that a buyer of an unascertained part has paid the price for that part.

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The Delivery Obligation, UKBC-GASLNGS 493298598 (2023)

The Delivery Obligation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery The Delivery Obligation 11-007

A GSA should be careful to define the actions necessary to consummate the act of gas delivery. The customary seller’s obligation will be to deliver gas to the buyer at the delivery point in response to the buyer’s requirements. This gas could be delivered directly by the seller or in consequence of some form of substitutive right. Particular care needs to be taken in formulating the precise nature of the seller’s duty here, so that what the seller needs to do in order to properly discharge this contractual obligation can be clearly identified. The GSA could recite any of the following formulations in definition of the seller’s obligation to deliver gas to the buyer at the defined delivery point: “the seller shall deliver”; or “the seller shall make available for delivery”; or “the seller shall tender for delivery.” The intended effect of all three formulations is the same—that the seller will deliver gas to the buyer by making that gas available to the buyer, wherever and whenever required, whereupon the seller will have discharged its essential contractual duty. The first of the three formulations is the simplest and least contentious. It is not clear what purpose the additional wording in the second and third formulations seeks to serve, and it is often applied without definition. 2 In both cases the additional wording simply adds ambiguity and uncertainty and should be avoided. 3 Some GSAs seek to compensate for applying a more complicated delivery formulation by then applying a specific definition of delivery and how the seller’s obligation is to be satisfied. This usually generates more confusion.

11-008

Another issue to consider is whether the act of delivery is a unilateral or is a mutual obligation. Whichever of the three delivery formulations is used, the essential principle which the seller will wish to maintain in the GSA is that the seller’s obligation to deliver gas is satisfied when the seller provides gas to the buyer at the delivery point in satisfaction of the buyer’s requirements. Critically, the seller will wish to ensure that the ability of the seller to discharge its obligation is entirely within the seller’s control, and is not dependent upon a requirement that the buyer must also take delivery of the gas. If this was the case, the buyer could elect not to take delivery and there could then be some debate as to whether the seller had performed its delivery obligation or should be liable for a seller’s delivery failure. English law 4 suggests that there are concurrent delivery and acceptance obligations of the buyer and the seller which are to be performed simultaneously in order to effect a contract for the sale of goods, unless otherwise stated by a particular contract. A GSA should be careful therefore to make clear that the act of delivery is an act which can be satisfied unilaterally by the seller’s performance, and is not founded upon a concurrent, mutual obligation which also involves the buyer.

11-009

In respect of the obligation to deliver gas the seller cannot undertake an absolute guarantee to meet the buyer’s requirements since the reality is that over the lifetime of the GSA there could be circumstances which could interrupt the delivery of gas. The GSA must address such possibilities, where the seller’s failure to deliver gas could be: (i) A permissible failure.

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The Delivery Obligation, UKBC-GASLNGS 493298598 (2023)

The seller’s delivery failure could be permissible according to the terms of the GSA. The seller could, for example, be relieved from the obligation to deliver gas because it is exercising suspension rights (20-013), scheduled maintenance rights (24-002), deliver or pay rights (19-006) or a delivery interruption right (see below), for which the seller will have no liability to the buyer. (ii) A relieved breach. The seller’s delivery failure could be a breach of the GSA, but one in respect of which the seller is entitled to claim relief from liability in accordance with the force majeure provisions in the GSA (35-001). (iii) An unrelieved breach. The seller’s delivery failure could be a breach of the GSA in respect of which the seller is not entitled to claim relief and for which the seller will be liable to the buyer, with the extent of the seller’s liability to be determined by general law or by the application of specific liability provisions under the GSA. Consequently, whenever the seller fails to deliver gas the circumstances of the particular failure must be analysed in order that the correct provisions of the GSA are applied between the parties. That said, in some cases the formulation of what is sometimes called a “requirements contract” might be adopted, whereby the seller undertakes an absolute and unrelieved obligation to supply all of the buyer’s gas requirements, and, possibly in return, the buyer undertakes to secure all of its gas requirements only from that seller. This will require the seller to do all in its power to secure gas from alternative supply sources in order to meet the buyer’s requirements, and the seller will have an absolute liability for a delivery failure. Rarely however would the seller be comfortable with such an absolute and unrelieved obligation, whatever the reason for the failure. 11-010

Beyond the actual delivery of gas the seller might also have an obligation (which could be expressed in or inferred from the GSA) to maintain the gas productive capacity necessary to meet its obligations to the buyer under the GSA. After all, the obligation of the seller in a GSA is as much about the provision of a delivery service to the buyer as it is about the delivery of the underlying commodity. This delivery capacity obligation could be evidenced by provisions relating, for example, to the existence of a swing factor (12-012) and excess gas (12-014) provisions. The existence of a delivery capacity obligation (whether express or implied) could also be taken as a collateral undertaking to support any obligation in the GSA to install (or to maintain) certain facilities (23-002). The seller might be reluctant to admit to such a collateral commitment in the GSA, preferring instead only to commit to delivering gas in response to the buyer’s requirements, with the resultant remedy for the seller’s delivery failure being the principal penalty for a failure to do so. Corresponding to the seller’s possible delivery capacity obligation, the buyer might be made subject to an obligation to maintain capacity at and downstream of the delivery point which is sufficient to take delivery of gas in accordance with the requirements of the GSA. The buyer might also be reluctant to concede such a collateral commitment, however, preferring instead to be subject only to a take and pay or a take or pay commitment (16-003, 16-004) as an incentive to take delivery of gas.

11-011

Where the seller controls the flow and/or the pressure of gas at the delivery point (11-002) it may be that the seller over-delivers gas in response to a buyer’s requirements and such over-delivered gas is taken delivery of by the buyer. A GSA could provide for a delivery tolerance, whereby a delivery of gas by the seller which is greater than the buyer’s nomination will still be paid for by the buyer at the contract price (10-005) where that additional quantity of gas is within the delivery tolerance. Any quantities of gas beyond the buyer’s nomination but also beyond the delivery tolerance could be free to the buyer. To force the buyer to pay for the entire quantity of what could be a significant over-delivery would be unfair to the buyer, not least since the buyer may be unable to accommodate that over-delivery. A delivery tolerance is not the same as the overtake of gas by the buyer (18-013), which could be addressed separately in the GSA. The GSA might also apply certain gas delivery obligations between the parties which are not firm but which are underpinned by a party’s obligation to use reasonable endeavours (41-020), such as the provision of excess gas (12-014) or the provision of

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The Delivery Obligation, UKBC-GASLNGS 493298598 (2023)

force majeure restoration quantities (35-011). It should be remembered that a reasonable endeavours obligation to do something is still an obligation, enforceable as such and with a potential liability of a party for a failure to perform.

Footnotes 2 3 4

The Sale of Goods Act 1979 offers no definition of the concepts of “make available for delivery” or “tender for delivery”, but it does define the act of “delivery” in s.61(1), where delivery is defined as “the voluntary transfer of possession from one person to another”. The AIEN GSA and the AIEN LNG MSPA (6-002) both use the “make available” formulation; the GIIGNL MSPA (6-002) uses the basic “shall deliver” formulation. See s.27 of the Sale of Goods Act 1979: “It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them”.

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Deliverability, UKBC-GASLNGS 493298597 (2023)

Deliverability Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery Deliverability 11-012

Deliverability is an imprecise concept which is often referred to in a GSA but without adequate definition. Essentially, it connotes the provision by a seller of sufficient gas production (and transportation) capacity to meet all of the buyer’s requirements under a GSA, in part reflective of the notion that under a GSA a buyer is buying both gas and a delivery service. Deliverability could relate to the seller’s ability to meet the buyer’s baseload gas quantity requirements (such as nominated quantities (18-002), variations to those nominated quantities (18-008) and swing quantities (12-012)), the provision of transportation capacity (which could be procured from a third party), and also the provision of facilities (23-002) capable of providing the necessary gas production, processing and transportation capacity. Deliverability is also sometimes used to indicate the anticipated production profile of a particular gas field. End of Document

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Seller’s Reservations, UKBC-GASLNGS 493298601 (2023)

Seller’s Reservations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery Seller’s Reservations 11-013

Partially in order to condition the extent of the seller’s delivery obligation (see above) the seller might wish to reserve certain minimum operational rights in the GSA in respect of its facilities and the gas to be sold and purchased, such as the following: (i) Gas lift, flaring, fuel and venting. The rights to reinject gas for reservoir pressure maintenance and liquids lifting, to use gas as fuel for the seller’s facilities or to flare or vent gas where required operationally. (ii) Commingling and substitution. The right to commingle or to substitute gas from its sources of supply with gas from other sources. This reservation is particularly appropriate where gas will be transported through a multi-shipper pipeline prior to delivery, to which the principles of commingling, allocation and attribution will apply (Ch.27). (iii) Treatment and processing. The right to treat or process gas or to strip liquids from the gas prior to delivery to the buyer, and also to sell separately any of the resultant liquids. (iv) Unitisation. The right to pool, combine or unitise any of the sources from which gas will be produced for the purposes of the GSA with any other gas reserves. (v) Further sales. The right to sell gas to third parties, although this will need to be reconciled with any dedication rights (6-005), exclusivity commitments (7-007) or overselling prohibitions (12-023) in the GSA. In exchange for agreeing to these seller’s reservations the buyer will usually wish it to be made clear in the GSA that the exercise of these rights by the seller will not relieve the seller from any liability for breach of the GSA, e.g. through a resultant seller’s delivery failure or the supply of off-specification gas, otherwise the seller’s reservations could make a mockery of the buyer’s rights under the GSA. Unfortunately not all GSAs are entirely clear on this point. These seller’s reservations originated in depletion-based contracts (6-005), as exceptions to the absolute principle of the dedication of all the reserves of gas in a nominated gas field in favour of the buyer. Consequently the buyer might argue that these seller’s reservations properly only apply to a depletion-based contract where the activities contemplated might reduce the net amount of gas available for delivery to the buyer and should not apply in a true supply-based contract (6-005). It may also be that, by the same token, the buyer will wish to reserve certain matters in respect of its downstream operations (relating, for example, to the manner in which it conducts its downstream operations and/or uses the gas which it has bought). End of Document

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Interruption, UKBC-GASLNGS 493298599 (2023)

Interruption Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 11 - The Delivery Point and Delivery Interruption 11-014

In a GSA the seller could reserve the right to interrupt the delivery of gas to the buyer, typically for a defined period of time and usually only upon a requisite period of notice being given to the buyer and often then only on a defined number of occasions in each contract year. Where this is the case a GSA would be described as interruptible. Such a right of interruption is of commercial advantage to the seller where the seller is delivering gas to several buyers and wishes to prefer the delivery to certain buyers for commercial reasons, or where operational constraints prevent the seller from being able to deliver gas to all of its buyers, and such a right may also be helpful if the seller is delivering gas produced from associated gas (1-004) and there is a disruption with the associated liquids production. From the buyer’s perspective a right of interruption would be more acceptable where the buyer is able to switch to an alternative source of fuel supply or is able to manage without gas for the duration of the interruption. To give the buyer an economic incentive to accept a GSA with a right of interruption in favour of the seller either the contract price (13-001) might be lower or where the seller exercises the interruption right the buyer might be compensated by the application of a price discount in respect of equivalent following quantities of gas. Interruption should also give an adjustment to the buyer’s overall purchase commitment, where the GSA imports a take and pay or a take or pay commitment (16-003, 16-004). Where, however, the economic treatment in the GSA of an interruption in the delivery of gas to the buyer becomes akin to the buyer’s remedy under the GSA for a seller’s delivery failure (19-002) then there might be little real value to the seller of having a right of interruption, since the seller could just as easily fail to deliver gas to the buyer, subject only to there being a possible right of the buyer to terminate the GSA for a delivery failure (39-005), which could give a disincentive to the seller to do so. The parties should also be conscious that where a right of interruption is exercised there may be no matching relief from the liability which the transporting party might have in its capacity as the shipper under the gas transportation arrangements in respect of any consequent unutilised pipeline capacity. End of Document

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Introduction, UKBC-GASLNGS 493298604 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Introduction 12-001 This chapter addresses the provisions relating to gas quantities, rates and reserves in a pipeline gas sales contract. Specific provisions relating to LNG sales contracts are considered in 32-019, although there will be some overlap between the two. Whether the seller will deliver gas on a homogenous basis or from identified sources of supply, the GSA will identify the quantity of gas which the seller will sell and which the buyer will buy by certain defined measures of quantity (often also defined by reference to certain periods of time). A GSA could also specify the anticipated rates of delivery of gas over certain periods of time. A GSA might also contain detailed provisions regarding reserves of gas which are to be committed by the seller for sale to the buyer in order to ensure the full performance of the GSA. End of Document

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Expressing Quantities, UKBC-GASLNGS 493298602 (2023)

Expressing Quantities Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Expressing Quantities 12-002 Quantities of gas can be expressed in the GSA in volumetric units or by reference to the calorific value of that gas (1-007). Whichever method of expression is used, the GSA will still contain the same basic quantities relationships. Diagrammatically the relationship between the quantities provisions in a GSA can be expressed thus:

Each of the above elements will now be examined, except that the shaded components are dealt with in separate chapters of this book. End of Document

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The Contract Quantity, UKBC-GASLNGS 493298610 (2023)

The Contract Quantity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves The Contract Quantity 12-003 The first task which the buyer and the seller might undertake is an estimate of the overall quantity of gas which is to be sold under the GSA, which could be described as the contract quantity. The contract quantity is often applied to represent the maximum quantity of gas which the seller is obliged to deliver to the buyer over the lifetime of the GSA, although this can be impossible to estimate accurately at the start of the GSA as the actual quantities of delivered gas could well be greater than the defined contract quantity (e.g. because of the application of excess gas quantities (see below) or upward flexibility quantities (see below) over the lifetime of the GSA, both of which will be unpredictable at the point when the GSA is executed). A contract quantity, if it is recited in a GSA, could therefore be an abstract number. The seller could calculate the contract quantity which it is prepared to offer by reference to the quantity of economicallyrecoverable reserves of gas (see below) which it estimates it has (or will have—depending on future exploration programmes) access to through production, and also by reference to quantities of gas which it can access through purchase from third parties. The buyer could calculate the contract quantity which it requires for its commercial purposes. A matching of how much gas the seller has versus how much gas the buyer needs will indicate the definition of the contract quantity in the GSA. It is not essential that the GSA recites a contract quantity if the quantities basis of the GSA is derived from a method of calculation such as the annual contract quantity (see below) where the GSA exists for a defined number of years in a basic term (10-002), since the multiplication of these two factors will effectively give an overall contract quantity. But if, for example, the contract quantity is determined by reference to the annual contract quantity and the GSA allows for upward quantity flexibility in respect of each contract year (see below) then the contract quantity will also be incapable of exact calculation on that basis. Consequently it is not the case that every GSA will recite an overall contract quantity. End of Document

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The Annual Contract Quantity, UKBC-GASLNGS 493298613 (2023)

The Annual Contract Quantity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves The Annual Contract Quantity 12-004 The annual contract quantity (ACQ) is intended to represent the maximum quantity of gas which the seller is obliged to deliver to the buyer, or which the buyer is entitled to take delivery of from the seller, in any contract year. The ACQ is particularly relevant as the cornerstone of an annually-based buyer’s take and pay or take or pay commitment (16-003, 16-004). The ACQ could be derived from the contract quantity divided by the number of contract years in the basic term (see above) but more usually the ACQ for a particular contract year will be stated as an absolute figure in the GSA. The ACQ could also be arrived at by multiplying the applicable daily contract quantity (see below) by the total number of days in that contract year (which should also cover leap years—with a possible adjustment (41-028)). Where there is a part contract year then the ACQ will be apportioned by reference to the number of days in that part contract year. In a supply-based contract (6-005) the ACQ should be the same for each contract year within the basic term, since gas is typically being supplied without reference to the deliverability profile of a particular gas field. In a depletion-based contract (6-005) however, the ACQ could vary annually during the basic term, in order to reflect the varying rates of production as the dedicated gas field starts production during the ramp up period, produces gas at a steady rate during the plateau period and depletes and ramps down during the decline period. In the latter case the seller usually has a right to set an ACQ for the decline period. This right may be unlimited or it may be subject to limitations. A right of the seller to set a decline pattern of an ACQ of zero is effectively an economic termination right in favour of the seller (39-005), although the ability to exercise such a right may be subject to the prior completion of a defined plateau period of gas delivery for the protection of the buyer. 12-005 The decision (on appeal) in British Gas Trading Ltd v Shell UK Ltd 1 observed that under the particular GSA the joint sellers were not obliged to serve notices to reduce the ACQ, but rather had the option to do so (which they presumably would have exercised if it enabled them to avoid a liability for a breach of the GSA). Under the GSA the sellers elected not to serve notices to reduce the ACQ because the sellers were still able to meet the buyer’s gas delivery requirements under the GSA by the provision of gas from other sources. At first instance the court determined that neither did it follow that the sellers were subject to an implied good faith obligation in favour of the buyer to exercise their option to serve notices to reduce the ACQ. 2 12-006 The ACQ is not an inviolable number, and it could be modified by several provisions within the GSA, including the possibility for the seller to deliver a quantity of gas which is less than or greater than the ACQ for a contract year if the seller and the buyer so require. A GSA could recite the right of the buyer to take delivery of more gas in respect of a contract year than is provided for by the ACQ, up to a defined amount as a percentage of the ACQ. Such a buyer’s upward flexibility quantity (or BUFQ) is effectively a call option for the buyer. Also, or alternatively, the quantities clause in the GSA might entitle the buyer to nominate a reduction to the ACQ in respect of a particular contract year, again up to a defined amount as a percentage of the ACQ (the buyer’s downward flexibility quantity (or BDFQ)). 12-007 The right to increase contractually committed offtake quantities will be valuable to a buyer in a market which it makes it difficult for the buyer to secure additional gas quantities from elsewhere on terms at least as good as those offered by the GSA, and the

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The Annual Contract Quantity, UKBC-GASLNGS 493298613 (2023)

right to reduce those quantities will be valuable to a buyer in a market where alternative opportunities exist to purchase gas quantities on terms which are more attractive than those offered by the GSA. On the other hand it could be the case under the GSA that the seller holds the right to nominate upward or downward flexibility quantities, up to a defined amount in each case as a percentage of the ACQ (the seller’s upward flexibility quantity (SUFQ) and the seller’s downward flexibility quantity (SDFQ)). The upward flexibility quantity would essentially be a put option for the seller, and the right to increase contractually committed offtake quantities will be valuable to a seller in a market which it makes it difficult for the seller to sell additional gas quantities elsewhere on terms at least as good as those offered by the GSA. Correspondingly, the right to reduce those quantities will be valuable to a seller in a market where alternative opportunities to sell gas quantities exist which are on terms more attractive than those offered by the GSA. In all of these cases the elections which are made (by either party, in whichever direction) will go towards shaping the ACQ for a particular contract year. Each of the BUFQ and the BDFQ represent additional value to the buyer, at the expense of the seller’s position under the GSA. The reverse is true in respect of the SUFQ and the SDFQ. The extent to which any of these provisions can be reflected within a GSA will depend up on the relative leverage enjoyed by the parties at the time of negotiating the GSA. It will also need to be agreed between the parties whether any of the upward or downward flexibility quantities should be priced at the contract price (13-001), or at a discount to or at a premium to the contract price, with a discount or a premium element on a downward flexibility right to the contract price to be reflected by later application against the price of future gas deliveries, and whether any of the downward flexibility quantities which a party has requested, or to which a party is subject, should be made good in the following contract year (and, if so, at what prices). 12-008 There is a particular relationship to note between how the ACQ is set in the GSA and upward quantity flexibility rights. Where the seller has a put option to increase the ACQ and can charge a premium to the contract price for the upward flexibility quantities then the seller could wish to set a low ACQ in order to maximise the value of the upward flexibility quantities. Where the buyer has a call option to increase the ACQ and can pay a discount to the contract price then the buyer could also wish to set a low ACQ in order to maximise the value of the upward flexibility quantities. Correspondingly, where the seller has a put option to increase the ACQ but at a discount to the contract price then the seller could wish to secure a high ACQ in order to maximise the contract price, and where the buyer has a call option to increase the ACQ at a premium to the contract price then the buyer could wish to secure a high ACQ for the same reason. Consideration should also be given by the transporting party to the impact of upwards and downwards flexibility quantities on the associated pipeline transportation capacity—whether the pipeline has sufficient booked additional capacity to transport any upward flexibility quantities and whether a capacity reduction might be applied in respect of any downward flexibility quantities. Not all of these upward and downward flexibility constructions can be accommodated for the seller and the buyer in the same GSA (since they could otherwise cancel themselves out) and so some order of priority will be necessary in the GSA. The interface with excess gas (see below) will also need to be coordinated.

Footnotes 1 2

British Gas Trading Ltd v Shell UK Ltd [2020] EWCA Civ 2349. See Braganza v BP Shipping Ltd [2015] UKSC 17; [2015] 1 W.L.R 1661 for a discussion of the circumstances in which the court would imply a term into a contract to condition the discretion which is conferred upon a contracting party.

End of Document

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The Monthly Contract Quantity, UKBC-GASLNGS 493298614 (2023)

The Monthly Contract Quantity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves The Monthly Contract Quantity 12-009 After the ACQ has been determined the GSA might then go on to prescribe a monthly contract quantity (MCQ). This formulation does not appear in all GSAs, since most GSAs usually proceed from the ACQ to the daily contract quantity (see below), but there are two instances where it does have a use: where the seller wishes the buyer to give forecasts of or nominations for gas on a monthly basis as part of its nominations (18-002); and where a monthly take or pay regime exists in a GSA. End of Document

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The Daily Contract Quantity, UKBC-GASLNGS 493298603 (2023)

The Daily Contract Quantity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves The Daily Contract Quantity 12-010 The seller and the buyer will calculate the baseload quantity of gas which is to be delivered by the seller on each day during each contract year in respect of a GSA. This daily contract quantity (DCQ) could be determined as the product of the ACQ divided by the total number of days in the contract year, but more typically the DCQ will be a set quantity of gas which is stated in its own right in the GSA to apply in respect of each day in each contract year. Subject to what is said below about the maximum daily contract quantity, the DCQ forms the basic determinant of the maximum quantity of gas which the buyer is entitled to nominate for delivery in respect of each day. If a GSA recognises seasonal gas demand patterns for the buyer during the course of a contract year (e.g. where the buyer’s demand for gas is spread over a summer and winter cycle) then the DCQs could vary on a monthly basis within that contract year. Standard seasonal cycles differ between different regions and their energy requirements. In the northern hemisphere gas demand will tail off gradually over the spring to summer months of March to August as the need for gas for home heating abates, with demand building up again for heating purposes after that for the autumn and winter months of September through to February (although in some countries gas demand could also increase during the peak summer months as the demand for power for air-conditioning units increases). In contrast, in the southern hemisphere gas demand will build up gradually over the summer months of November to March as the demand for air-conditioning rises and thereafter will tail off gradually as temperatures drop into the autumn. In all of these cases the pattern of the DCQs could be set in a particular GSA to follow the seasonal demand curve for gas quantities. 12-011

The buyer might have a unilateral right in the GSA to reduce the DCQ, subject to certain limits, in response to changing market demands for gas over the lifetime of the GSA, but this may be difficult for the seller to accept. The expectation of the seller under the GSA is to receive revenue for the sale of a certain volume of gas at a certain price. Any downward change to that volume, such as through a reduction of the DCQ, will affect the seller’s anticipated revenue return. Where the GSA does contain such a right in favour of the buyer the degree of variability of the DCQ in the buyer’s favour might be accompanied by corresponding inverse variations in the contract price in the seller’s favour (i.e. a lower DCQ leads to a higher contract price in order to compensate the seller, at least partially). A GSA might also contain a right of the seller to reduce the DCQ where the seller’s performance in the delivery of gas (which in turn would depend, for example, on the depletion of gas in the seller’s gas fields) would suggest this to be necessary. Such a DCQ reduction would be an alternative to the perhaps more draconian remedy of economic termination (39-005) and the suggested need for its existence would give the buyer a greater reason to examine the seller’s gas reserves expectations (see below), or to seek a supply-based contract (6-005) or a contract price (13-001) which reflects the risk to the buyer. Where the GSA contains a right of either party to reduce the DCQ then, unless the reduction is expressed to be temporary. there might also be provision for subsequent restoration of the reduced quantity where circumstances would so permit. End of Document

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The Maximum Daily Contract Quantity, UKBC-GASLNGS 493298612 (2023)

The Maximum Daily Contract Quantity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves The Maximum Daily Contract Quantity 12-012 Where a buyer’s nomination regime applies under the GSA (18-002) the seller will allow the buyer in respect of each day to nominate for delivery a maximum quantity of gas equal to the DCQ, and the seller might also allow the nomination of a further percentage of the DCQ, where the further percentage is often called the “swing factor”. The swing factor represents the peak loading of gas that the buyer can access in order to meet spikes in its gas demand and consequently a buyer will prefer to have as much swing as possible. The swing factor and the underlying CQ are together called the “maximum daily contract quantity” (MDCQ) in respect of a day, and the quantity of gas which the buyer can require for delivery in a day, up to the MDCQ, equates to the delivery capacity which the seller will be required to maintain within its gas production (and transportation, if necessary) facilities. Where the ACQ is the product of the DCQ multiplied by the number of days in a contract year (see above) it follows that where in respect of a day the maximum quantity of gas deliverable by the seller is the MDCQ then in respect of a contract year the seller could in theory deliver a quantity of gas equivalent to the MDCQ multiplied by the number of days in that contract year, to give what is effectively a maximum ACQ. This construction is not commonly applied in a GSA however. Depending upon the configuration of the seller’s gas production and gas transportation facilities it may be that over the course of a contract year the maximum quantity of gas which is deliverable by the seller is limited to the ACQ and that the delivery of an aggregate quantity of gas which is equivalent to the maximum ACQ is not possible. Where this is the case then the GSA should recite that the buyer’s right to take gas at the MDCQ in respect of a day is subject to an overall cap on the annually deliverable quantity at the ACQ. This could require in practice that the buyer must balance its daily offtakes over the contract year to get back within the ACQ. 12-013 Subject to what is said below about excess gas, the MDCQ is the maximum quantity of gas which the buyer can nominate for delivery at the delivery point on each day and this in turn will condition the limits of the application of the seller’s delivery failure liability (19-002) and the excess gas regimes. A wide swing factor in the buyer’s favour could obviate the need for reliance on excess gas (see below). The seller must ensure that the physical capabilities of its gas production and transportation facilities can accommodate the daily delivery of gas at the MDCQ. In British Gas Trading Ltd v Shell UK Ltd 3 the court (on appeal) held that the failure of joint sellers to meet the obligation to maintain delivery capacity at the level required by a GSA would be a breach of the GSA (although in that particular case the sellers’ breach was found to have caused no loss to the buyer because the sellers were still able to meet the buyer’s gas delivery requirements under the GSA by the provision of gas (in the required quantities, with the same quality specification, and at the same price) from other sources, such that the buyer was put in the same position that it would have been had the sellers properly performed the GSA. The measure of damages which were awarded to the buyer by the court for the sellers’ breach of contract reflected that position). This could require the seller to incur the expense of building additional delivery capacity into its facilities which might periodically be redundant, but the seller will typically factor these redundancy costs into the contract price (13-001). For this reason the buyer should assess whether it really needs the flexibility afforded by the swing factor or whether the buyer is better placed to provide or to procure that flexibility itself from elsewhere.

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The Maximum Daily Contract Quantity, UKBC-GASLNGS 493298612 (2023)

Footnotes 3

British Gas Trading Ltd v Shell UK Ltd [2020] EWCA Civ 2349.

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Excess Gas, UKBC-GASLNGS 493298605 (2023)

Excess Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Excess Gas 12-014 There may be times where in respect of a day the buyer requires delivery of a quantity of gas which is even greater than the MDCQ. This is often called “excess gas”, but excess gas can also be defined as the delivery of gas by the seller in response to a requested variation of a nomination by the buyer which is made outside of the strict time limits for the variation of a nomination (18-008). In these circumstances it is customary for the GSA to say that the seller will, in response to a request by the buyer, use reasonable endeavours (41-020) to deliver such quantities of excess gas, which could be paid for by the buyer at a premium to the contract price, although the buyer will argue for application of the contract price only. Excess gas represents a commercial opportunity for the seller to make more money for comparatively little risk and can be seen as a pricing device rather than as a physical measure of the quantity of gas. The buyer might argue that, because it has a firm right to take a quantity of gas in a contract year up to the ACQ, then any quantities of gas which are requested by the buyer on a day in excess of the MDCQ, in the aggregate up to the ACQ for the contract year, should not constitute excess gas, and particularly so where excess gas is priced at a premium to the contract price. The seller might prefer, however, to proceed with the determination of excess gas on a daily and individual nomination basis. 12-015 Although it is usual that the seller is only obliged to use reasonable endeavours to deliver excess gas, most buyers will require that where the seller accepts the buyer’s request to deliver excess gas then the seller’s obligation to deliver that excess gas should be firm and so should result in the entitlement of the buyer to the agreed seller’s delivery failure remedy (19-002) if the seller then fails to deliver that excess gas. Some GSAs only give the seller a further reasonable endeavours obligation to deliver the excess gas which it has said it will deliver, wherein a failure to make such a delivery might not constitute a seller’s delivery failure. Where the seller has accepted the buyer’s request to deliver excess gas and any failure of the seller to thereafter deliver that excess gas is classified as a seller’s delivery failure the seller’s failure could result in the application of the shortfall price discount (19-008) to the extent of the seller’s delivery failure based on either the premium excess gas price or on the contract price, where the two prices are not the same. Whether excess gas which is taken by the buyer should reduce the contract quantity and/or should count towards satisfaction of the buyer’s take and pay or take or pay commitment, or should even constitute carry forward and so an adjustment to the following contract year’s take or pay quantity, will be a matter for negotiation between the seller and the buyer. The buyer would always prefer that delivered excess gas will so count and, in principle, it is perhaps fair for the buyer to maintain this argument where excess gas which the seller agrees to deliver becomes a firm nomination for the delivery of gas and/or where the excess gas is priced at a premium. The parties will also need to decide on the treatment of a request by the buyer for excess gas which is made during a period when the buyer is recovering make up (17-002). The buyer could suggest that since make up is recoverable at a zero price then so should the excess gas be; the seller could counter with the suggestion that the buyer still has to pay the premium to a deemed price for such excess gas, albeit that the underlying price is zero.

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Excess Gas, UKBC-GASLNGS 493298605 (2023)

It may be that where associated gas (1-004) is being sold the seller might require the buyer to take delivery of additional quantities of gas in order that production of the associated liquids can be maintained. Such additional gas should not constitute excess gas for which a premium is payable, and the buyer might even request a discount to the contract price in these circumstances because of the service which it is rendering to the seller by taking delivery of such gas. End of Document

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Quantity Classifications, UKBC-GASLNGS 493298608 (2023)

Quantity Classifications Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Quantity Classifications 12-016 It may become appropriate to reclassify certain gas quantities where the need for such reclassification becomes operationally apparent in the lifetime of the GSA. This could relate for example to the seller’s delivery failure and force majeure claims. The GSA might therefore provide for the reclassification of certain quantities of gas. The GSA will more usually set out a generic description of the principles of any reclassification mechanism, however, rather than a prescriptive regime, to better ensure that a particular circumstance is not overlooked in a specific list of examples. 4 Where the seller is responsible for preparing the necessary invoices, statements and gas quantity computations (20-002) then the seller will prepare the statements according to its determination of how any necessary reclassifications should have been performed and the buyer will have a right to dispute those determinations through its right to dispute a corresponding payment which is alleged by the seller to be due (20-014).

Footnotes 4

That said, a suggested reclassification mechanism is set out at P-11 in order to better describe some of the options for such reclassifications. The AIEN GSA (6-002) also addresses these reclassifications, although in overwhelming algorithmic detail.

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The Attributed Order, UKBC-GASLNGS 493298609 (2023)

The Attributed Order Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves The Attributed Order 12-017 Gas will be delivered by the seller to the buyer but different elements of a gas stream could be subject to different quantity classifications and price treatments under the same GSA. To make clear the extent of the buyer’s rights and the seller’s obligations the GSA could recite a hierarchy, often called the attributed order, in which the total amount of gas which is actually delivered to the buyer over the course of a contract year will be deemed to have been delivered. The attributed order recognises the need to distinguish the treatment of certain quantities of gas delivered by the seller under the GSA where those quantities might be subject to different commercial principles or prices. 12-018 The following could be an attributed order in a GSA: Firstly

In satisfaction of the ACQ

Secondly

To the recovery of any accrued make up entitlements

Thirdly

To the recovery of any force majeure restoration quantities

The delivery of excess gas could, because of how excess gas is typically defined in a GSA (see above) take place at any time and so excess gas does not necessarily form a defined element which can be given a place in the attributed order. This can be contrasted with LNG deliveries, where excess LNG cargoes could be delivered in a discrete period of time. Also, in a greenfield project any of the linefill (28-009), fuel gas (28-010) or commissioning gas (23-006) could be the first quantity of gas to flow sequentially but this typically occurs before the start date. The attributed order should properly only record gas flows which take place after the start date and consequently these various gas flows will not necessarily appear in an attributed order. End of Document

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Gas Rates, UKBC-GASLNGS 493298611 (2023)

Gas Rates Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Gas Rates 12-019 A GSA will usually provide that the delivery of gas will, as far as practicable, be made by the seller at a relatively uniform and constant rate during the course of a day. Where there are several nomination periods over the course of a day (18-004) then the uniform rate could be the weighted average of all the nominations for that day. The delivery of gas at a uniform rate is usually of assistance to the seller (and to the transporter) in managing the operation of the gas production (and transportation) facilities. In the course of a day, however, the buyer may require the rate of delivery of gas to vary according to any fluctuations in its downstream demands and that this is reflected in the gas sales (and transportation) arrangements. This would translate to the provisions for the nomination of gas for transportation and delivery in respect of a day and for the variability of these nominations (18-008). The seller (or a transporter) could wish to minimise the prospects for volatility in these provisions, in the interests of maintaining a stable and predictable production (and transportation) profile. Consider the following example of the prospectively divergent aspirations of the seller and the buyer:

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Gas Rates, UKBC-GASLNGS 493298611 (2023)

Where the buyer is able to secure a right to the delivery of gas at other than a uniform rate the highest point of the increased rate of gas delivery is often called the “maximum instantaneous rate” (MIR). The seller might be able to accommodate this increased rate as long as the buyer’s daily offtake of delivered gas is balanced elsewhere. End of Document

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Reserves, UKBC-GASLNGS 493298607 (2023)

Reserves Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Reserves 12-020 Whether a GSA might be a supply-based contract or a depletion-based contract (6-005) is considered elsewhere and this distinction will shape the decision as to whether a defined gas field is specified in and is committed to the performance of the GSA. Where gas is sold on anything other than the basis of a fungible supply, a buyer could be concerned to ensure the adequacy of the gas reserves which are contained in an identified gas field before production begins, and on an ongoing basis throughout the lifetime of the GSA. Gas reserves will be estimated by reference to the probability of the existence of gas in accordance with industry-accepted standard definitions, such as the following: 5 (i) Proved reserves. Sometimes referred to as “1P” or “P90” reserves, these are defined as “those quantities of petroleum which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations”. Essentially, there should be at least a 90 per cent probability that the quantities of gas actually recovered will equal or exceed the 1P estimate. (ii) Probable reserves. Sometimes referred to as “2P” or “P50” reserves, these are defined as “those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves”. Essentially, there should be at least a 50 per cent probability that the quantities of gas actually recovered will equal or exceed the 2P estimate. (iii) Possible reserves. Sometimes referred to as “3P” or “P10” reserves, these are defined as “those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than probable reserves”. Essentially, there should be at least a 10 per cent probability that the quantities of gas actually recovered will equal or exceed the 3P estimate. 12-021 Under most hydrocarbon accounting protocols, whether a seller can actually record physical reserves of gas as an asset on its balance sheet following discovery will generally be conditioned by whether that seller has formulated a detailed development plan for those reserves or, more typically, that a binding contract for the sale of gas has been agreed for those reserves (in contrast with crude oil reserves which generally can be booked once they have been discovered and estimated). Thus, the critical importance to the seller of the GSA becomes apparent. The certified existence of gas reserves could also be a condition precedent to the effectiveness of the GSA and could be necessary to underpin the seller’s FID in respect of the overall gas commercialisation project. Where a GSA is intended to contain a gas reserves commitment the following provisions could be recited: (i) Identification of the gas reserves.

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Reserves, UKBC-GASLNGS 493298607 (2023)

An initial determination of the gas reserves that are to be applied (and possibly even dedicated, on the basis of exclusivity) to the performance of the GSA (distinguished between proved, probable and possible reserves and evidenced by an initial reserves certificate issued by an independent petroleum engineer). (ii) Reserves reviews. Scope for periodic reviews of the initially identified reserves through further reserves certification (with agreement as to how the costs of such certification are borne between the parties). (iii) Reserves modification. The right of the seller to add further sources of gas to or to withdraw existing sources of gas from the initially identified reserves during the lifetime of the GSA. Although these provisions might seem more appropriate to a depletion-based contract, at least some of them may be required by a buyer under a supply-based contract, or at least under a hybrid supply contract, in order to give satisfaction that gas reserves exist which will be sufficient to secure the proper performance of the GSA. 12-022 Any dedication of gas reserves which is made by the seller in favour of the buyer could be expressly disapplied where the dedicated gas is consumed by the seller under any of the seller’s reservations (11-013) or where gas is sold to a third party for the duration of a force majeure event affecting the buyer (35-001) or where the seller has suspended its delivery obligations because of the buyer’s payment failure (20-013). A GSA might also contain an obligation on the part of the seller (sometimes called a “reserves replacement obligation”) to carry out further works for the exploration for and the production of gas where it becomes apparent (e.g. in consequence of a further reserves certification exercise) that the initially identified reserves have fallen below a specified level. Such an obligation can apply to a depletion-based contract or to a hybrid supply contract and will often be limited in the seller’s favour so that the seller should only be obliged to carry out such works in its defined concession areas, and then subject to any necessary governmental consents, to the extent that such works would be economic (according to a defined test) from the seller’s perspective. Reserves of gas are not the same as the deliverability of that gas by the seller. This is a separate matter which goes to the provision of productive capability and facilities necessary to meet the buyer’s expectations under a GSA (11-012).

Footnotes 5

See SPE PRMS—Petroleum Resources Management System, prepared between the SPE, WPC, AAPG and SPEE and issued in 2007/amended and reissued in 2018. Available at http://www.spe.org.

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Overselling, UKBC-GASLNGS 493298606 (2023)

Overselling Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 12 - Quantities, Rates and Reserves Overselling 12-023 During the lifetime of a GSA the seller could contract to sell gas from the initially identified reserves to the buyer and to another person, which the seller ostensibly would be able to do unless those reserves have been dedicated to the buyer (6-005). The buyer could be concerned that those further gas sales commitments which the seller has entered into could adversely affect the intended performance of the GSA by depletion of the gas reserves, a concern sometimes described as the risk of overselling by a seller. The ongoing reserves certification process could illustrate the existence of the problem to the buyer, but it will not solve the problem for the buyer. Assuming the buyer cannot prevent the risk of overselling through having secured an absolute reserves dedication provision in the GSA, the next issue becomes one of protecting the buyer’s position. The buyer’s remedies in respect of such a situation could come through a combination in the GSA of a reserves replacement obligation of the seller (see above), a reliable remedy for the seller’s delivery failure which could also include a cash-out or a gas-out mechanism in favour of the buyer (19-008), a right of the buyer to terminate the GSA for the seller’s prolonged delivery failure (39-005), which also includes a termination payment from the seller to the buyer (39-007), and also the provision of adequate collateral support (15-002) for the seller’s payment obligations under these various provisions. A warranty and representation (41-030) which is given by the seller to the buyer under the GSA that the reserves of gas are, and will for the lifetime of the GSA be, sufficient to meet all of the buyer’s gas delivery entitlements could, if breached, give the buyer a right to terminate the GSA. This might be of little practical use to the buyer if replacement sources of gas cannot be found by the buyer, and in any event the same net effect could be achieved if the GSA contains a termination right in favour of the buyer for the seller’s prolonged failure to deliver gas beyond a particular threshold. A breach of such a warranty and representation could also give the buyer a right to claim monetary damages for the loss which the buyer is able to prove. These damages would be a step out from the liquidated damages which the seller’s delivery failure remedy affords to the buyer, and would also be subject to application of the consequential loss liability provision in the GSA (36-008). End of Document

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Introduction, UKBC-GASLNGS 493298615 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price Introduction 13-001 This chapter addresses the provisions relating to gas pricing in a pipeline gas sales contract. Specific provisions relating to LNG sales contracts are considered at 32-022, although there will be some overlap between the two. A GSA will recite a mechanism for determining the price payable by the buyer for quantities of gas delivered by the seller. The contract price could be determined by reference to calorific values or units of volume, depending on how the GSA expresses gas quantities. The price payable for gas is the most critical component of the relationship between the seller and the buyer since the contract price will largely determine what other commercial terms can be secured within the GSA, and getting the contract price right will be crucial to ensuring the economic sustainability of the GSA over the long term. The contract price will also be the foundation for the determination of further price-based components such as the excess gas price, the shortfall gas price discount and the commissioning gas price. The price of gas will be a less critical concern within the context of a spot trade or a short-term contract because the consequence of a deficiency in the price formulation will be commensurately short-lived. However, a long-term GSA represents an ongoing commitment for what might be a considerable duration and the legacy of getting the pricing proposition wrong in the GSA will be a constant reminder that the GSA is not operating satisfactorily. This might ultimately be unsustainable. Price review provisions might not offer complete relief in respect of a contract price which is badly off the mark from the start. End of Document

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The Pricing Philosophy, UKBC-GASLNGS 493298619 (2023)

The Pricing Philosophy Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price The Pricing Philosophy 13-002 The Oxford English Dictionary defines a price as “the amount of money expected, required or given in payment for something” and thus is established the essential pricing paradox: “expected” or “required” is a measure of what the seller wants from the buyer but “given” is what the seller actually gets from the buyer. The width of the difference between these measures will determine the parameters for negotiating the pricing of gas in a GSA. A seller should appreciate that gas is ultimately worth only what the buyer is prepared to pay for it, rather than what the seller would ideally expect to receive for it, and this principle should form a fundamental part of the determination of a mutually acceptable contract price in the GSA. Gas which is unsold and which remains in the ground will have no present monetary value to the seller. 13-003 The buyer’s interest is in paying a contract price for gas which remains competitive with the price of competing fuels (including other potential supplies of gas) during the lifetime of the GSA and which does not lead to an unacceptable divergence between the contract price which the buyer pays for gas and the revenue which the buyer receives from the resale of the gas or from a resultant commodity from the processing of the gas (such as power or petrochemical products—1-012). Some commentators have suggested that a state or parastatal entity selling or buying gas might view such an activity as an essential policy objective in order to develop national resources or to secure a market position, where the pricing agenda is a subsidiary consideration. This would be in contrast to private sector sale and purchase commitments, where a commercially satisfactory contract price is the primary driver of a transaction. From the seller’s perspective the contract price should permit the recovery of three components: (i) Infrastructure costs. Recovery of the capital costs of the development of the seller’s gas production (and transportation) infrastructure. (ii) Operating costs. Recovery of the costs incurred by the seller which are associated with producing gas and transporting gas to the delivery point, where the seller has undertaken the transportation obligation. (iii) Expected return. Recovery of the required element of profit on the business of producing (and transporting) gas, since the seller will expect to do more than simply recover its costs. This element of expected return could be determined before or after the application of taxation to which the seller is liable in connection with the sale of gas. Despite these elements the contract price in the GSA will typically be expressed as a single figure, payable in consideration of the volume of gas which is being sold (and transported). The costs under item (i) above might be met by the seller directly or might be met by third party lenders to the seller (5-013), in which case the lenders will be keen to ensure that the contract price will be adequate to provide the necessary level of debt service coverage for the outstanding duration of their loan. Where such costs have been met by third party lenders the return which the seller can expect under item (iii) above will largely be subordinated to the priority of the lenders’ recovery.

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The Pricing Philosophy, UKBC-GASLNGS 493298619 (2023)

13-004 The orthodoxy of structuring the contract price to be sufficient to enable the seller to recover the costs under item (i) above could be open to challenge by the buyer where the seller has already recovered such costs through an earlier sale of gas. The buyer might argue that the contract price should not reflect a recovery of those costs for a second time, but rather that the contract price should be based only on a reimbursement to the seller of the basic commodity cost of the gas, the seller’s operating expenses and an acceptable level of return on the project. Even where the seller genuinely does require the GSA to reimburse such infrastructure costs the buyer might argue for a reduction in the contract price later in the lifetime of the GSA once those costs have been recovered, such that the economic bargain created by the GSA changes in the buyer’s favour in order to reflect the improved risk profile for the seller. There are several other circumstances in which the buyer might require a relative price discount from the seller: (i) Ancillary benefits. Where the seller is deriving an ancillary benefit from the gas sale such as the stripping and sale of associated liquids (1-004) from the gas stream. (ii) Ancillary burdens. Where the buyer is exposed to what it regards as the inconvenience of a seller’s nomination regime (18-003) or an interruptible gas delivery commitment (11-014). (iii) Supply contract sale. Where gas is sold on the basis of a supply contract (6-005) and recourse by the seller to alternative sources of supply of gas results in costs savings (e.g. lower operational costs for such alternative sources or reduced transportation costs where those alternative sources are closer to the delivery point). On the other hand, the seller might feel that the buyer should pay a higher contract price for the relatively greater security of supply which the alternative sources of supply could suggest. (iv) A derisked sales proposition. Where the buyer accepts a pricing proposition which exposes the seller to reduced risk (e.g. where the buyer accepts an indexed price (see below) without reference to more volatile pricing indices (see below)). All of these various objectives between the buyer and the seller can be difficult to achieve and reconcile within a single pricing construction. One measure of the price which is payable by a buyer is the net amount of money which the buyer is obliged to pay in exchange for the gas which it buys. Where a buyer also has a participating interest on the sell-side of the GSA (whether directly or indirectly through an affiliate sale) then the buyer will effectively be paying itself for at least some of the gas which it is buying. That amount could be offset against the headline contract price in order to demonstrate the lower net (or effective—see below) price of gas to the buyer. End of Document

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Price Construction, UKBC-GASLNGS 493298617 (2023)

Price Construction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price Price Construction 13-005 Before getting into the detail of how gas is typically priced under a GSA it might be useful to consider the various different ways in which the principle of the price in the GSA can be constructed. Some of the options are illustrated below (and, for the sake of example, the following illustrations assume that the buyer is re-selling the gas which it has bought from the seller, rather than that the buyer is using the gas directly for its own commercial requirements): (i) Seller’s cost plus pricing. In this supply-side driven price formulation the seller sells gas to the buyer for a contract price which covers the seller’s costs of production (and possibly transportation) and reflects the profit element which the seller also expects to earn. The buyer then re-sells that gas to an end-user for the contract price plus a further margin:

(ii) End-user netback pricing. In this demand-side driven price formulation the end-user dictates to the buyer what it would regard as being an acceptable price, and the buyer then buys gas from the seller for a contract price which reflects the price payable by the end-user and which allows the buyer to recover its required margin. The eventual contract price is agreed between the seller and the buyer by working backwards from the ultimate source of revenue:

(iii) Hub price netback pricing. The buyer contracts to buy gas from the seller at a set discount to whatever the defined market price (set by reference to traded gas prices at a defined hub—see below) is. The buyer then contracts to re-sell that gas to an end-user at the hub price or at some lesser netback or even at a premium thereto. The margin to the buyer is represented by the delta between the discounted hub (buy) price and the end-user (sell) price:

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Price Construction, UKBC-GASLNGS 493298617 (2023)

(iv) End-user benefit sharing pricing. The seller sells gas to the buyer for an agreed contract price. The buyer undertakes also to account to the seller for an agreed percentage of the net proceeds from the sale of gas to the end-user when payment is received by the buyer from the end-user:

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Price Determination, UKBC-GASLNGS 493298618 (2023)

Price Determination Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price Price Determination 13-006 The pricing of gas differs from the pricing of crude oil in one key respect: there is no generally recognised international trading price for gas, in contrast to crude oil, which is typically priced against international marker blends, although certain regional gas markets have a trading price which can be used as a reference point. Consequently, unless reference is made to such a regional market gas price in the GSA, the price of gas will be negotiated individually within the context of the individual GSA and its particular economic circumstances. Within certain regional gas markets a reported trading price can be obtained for gas at a particular hub. The GSA could price gas wholly or partly against such a reported trading price so that the price in the GSA would, in whole or in part, reflect the trading price as determined from time to time by the market. The parties could be reluctant to expose themselves to the potential volatility of relying on a moveable trading price as the basis of their contract price however, particularly in a long-term GSA. At the other end of the spectrum the parties could agree upon a fixed contract price. 1 The parties could, however, be reluctant to rely on a fixed contract price for the duration of the GSA out of a concern that the fixed contract price might fail to reflect the comparative value of the gas in the market over time. Fixed contract price mechanisms are more typical in short-term and mid-term gas sales arrangements, although a fixed contract price element will often be the constant component of a wider, indexation-based price mechanism (see below). A common method of pricing gas in a long-term GSA is one whereby the parties will fix a base price, which will be a product of negotiation between the parties according to the commercial circumstances of the particular transaction, and agree that the base price will be adjusted over time by escalating or deflating it against the movement of a nominated index in order to derive the contract price. This is illustrated by the following example:

In this example, the price (P) is determined as the base price (P o ) multiplied by a defined percentage (f), also often called a “pass-through factor”, of the quoted price of a defined commodity (A) over a defined reference period ( n ). The defined period over which the movement of the chosen index is tracked is often called the “application period” (see below).

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Price Determination, UKBC-GASLNGS 493298618 (2023)

13-007 A more complex (but common) alternative is for the GSA to provide for the adjustment of the base price by reference to a formula involving more than one index:

In this example, in order to determine the price (P), the base price (P o ) is multiplied by the product of fluctuations in the values of the nominated indices. In this example the numerator, the current price of gas oil (GO), is divided by denominator, an agreed historic price of gas oil (GO°), and the resultant figure is then multiplied by the percentage weighting (in this case 50 per cent) which is assigned to that index. The same process is applied to the other index, high sulphur fuel oil (HSFO) and the resultant figures are added and are then multiplied by the P o component to give the applicable price.

This formula reflects changes in the value of the chosen indices by reflecting the ratio change between the numerator (the current price of the chosen index) and the denominator (the agreed historic price of the chosen index). An alternative way of structuring the formula would be to reflect changes in the value of the chosen indices by applying the actual (and not the ratio) difference between the numerator and the denominator. Ratio, rather than actual, changes will typically produce less significant levels of change. 13-008 The base price (P o ) could be multiplied by the results of the chosen index package, or it could be added to the results of the chosen index package. The use of multiplication or addition could, despite the ostensibly benign appearance of the change, produce quite different results (where, in the following example, the result of the chosen indexation package is a change value of $2.25):

An indexation multiplication model causes the base price component to move in track with changes in the selected indices over the selected time period, perhaps more than would be the case with an indexation addition model. An exposure to a greater risk of volatility in the pricing model which is accepted by the use of an indexation multiplication model and/or the application of actual rather than ratio changes could be mitigated by the use of a pass-through factor:

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Price Determination, UKBC-GASLNGS 493298618 (2023)

In this example, the factor (f) would be a percentage of less than 100 per cent. 13-009 Indexation is intended to create a roughly comparable market price proxy for the gas which is being sold. Where the parties elect to price gas by reference to an index, the holy grail of gas pricing is a pricing formula which convinces both parties that it remains relevant and satisfactory through changes in market circumstances during the lifetime of the GSA. There is no rigid dogma in the construction of such a gas price formula, with the application of whichever indices the parties are most comfortable with and are able to negotiate. When it comes to selecting the indices each party is likely to have a preference which reflects that party’s expectations as to the level of price volatility which could be expected or should be permitted during the lifetime of the GSA. The following indices might be considered (although they might not be given equal weighting in a pricing formula): (i) Crude oil prices. The movement of quoted crude oil prices is generally acceptable as an index to a seller which is an oil company because of the seller’s familiarity with the oil business, because oil prices are seen as offering a relative degree of stability, and because of a general expectation that crude oil prices (and so gas prices) will continue to escalate. The buyer however might wish to place less emphasis on crude oil prices because the revenue which the buyer receives from the resale or the consumption of gas is unlikely to escalate in the same manner. Some limitations on the prospective volatility of crude oil prices could also be applied (see below). (ii) Oil products prices (defined by international exchanges). An oil company seller could favour internationally-priced crude oil products such as gas oil, low sulphur fuel oil or high sulphur fuel oil as indices, for the same reason that it favours crude oil prices as an index. These fuels are often used as competing fuels with gas for power generation purposes and consequently the buyer might not have the same degree of objection to these indices as it might have in respect of crude oil prices because they could represent a more relevant index. (iii) Oil products prices (defined by domestic markets). If the seller is comfortable with crude oil products prices then the buyer might be more comfortable with crude oil products which are priced in the domestic market into which the buyer is reselling the gas or any products of the gas, on the basis that those prices could be more relevant. Even with domestic markets there could be localised sub-markets, however, and so care will be needed to select the appropriate index. (iv) Electricity prices. The retail price of electricity is often a popular index with buyers where gas and electricity compete closely in the same market. Where, however, electricity prices are heavily regulated or are subject to market distortions (such as tariffs or subsidies) then using retail electricity prices as an index could feed those distortions into the pricing in the GSA. (v) Coal prices. This could be less attractive to a seller as an index because coal is often perceived as a low-grade, environmentally disadvantaged fuel and so could be unlikely to increase in price in line with other fuels. On the other hand, where the buyer is combusting gas as a feedstock for power generation then the coal price could be an attractive index since coal might be the chief alternative feedstock to gas for power generation in the particular market. (vi) Gas prices. Competing gas prices (to the extent that these prices can be established by publicly-available data) are logically the best indicator of what the price in the GSA should compete with, but the sale price of gas is often not embraced enthusiastically as an index because of a concern that using the price of gas from competing sales could lead to some circularity and even a spiralling of prices.

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Price Determination, UKBC-GASLNGS 493298618 (2023)

(vii) Inflation. The parties might appreciate the inclusion of a non-energy specific index such as general inflation, since this will reflect the general stability of a particular economy and could act as a hedge against spiralling or collapsing energy-based indices. There are many different ways of measuring inflationary movements, which will differ according to the components taken into account. Thus, inflation could be measured according to a defined, published index (such as the Consumer Price Index (CPI) or the Retail Price Index (RPI)). 13-010 In practice it can be difficult to predict which index will demonstrate the least volatility and so the selection of a basket of different indices with equal or differential weightings attached is the usual compromise in order to minimise the effect of undue volatility of a particular index. In practice it is not uncommon to see price indexation formulae with a complexity such as the following, which relies on gas oil (GO) prices, high sulphur fuel oil (HSFO) prices, electricity (E) prices and general inflation (I) as indices:

It will be apparent therefore that there will usually be something of a negotiation to be had between the buyer and the seller as to the indices to be used, and also as to the relevant percentage weightings to be assigned to each index, in the price adjustment mechanism where a basket of indices is used. As part of the negotiation the choice of index and the percentage weightings to be accorded to each index could also vary according to the base price which is agreed; the buyer, for example, might feel entitled to a bias towards the indices which it prefers where a relatively high base price is agreed to be paid, and the reverse would apply in favour of the seller where the GSA recites a relatively low base price.

Footnotes 1

See the NBP 2015 and Beach 2015 contracts (6-002).

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Price Adjustment, UKBC-GASLNGS 493298620 (2023)

Price Adjustment Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price Price Adjustment 13-011

An indexed price mechanism, as described above, requires the periodic analysis of the movements of the defined indices over a chosen application period. There will then be an adjustment of the contract price to reflect such movements. There are several elements to this: (i) Frequency. A GSA must define the frequency with which a price adjustment exercise will be undertaken. There is a balance to be achieved between undertaking frequent price adjustments, which will mitigate the risk that the contract price is out of step with market movements, and exposing the parties to an overly-administrative burden of repeated price adjustments. Such a price adjustment exercise could be undertaken on an annual basis and upon a nominated date within the first month of each full contract year. An infrequent price adjustment exercise, particularly when coupled with a lengthy application period (see below), could mean that it will take a relatively long time for an adjusted price to work its way through the GSA, and the benefit of that adjusted price could be lost to an affected party by the time it comes to bear. To mitigate this the price adjustment exercise could be carried out more frequently (say quarterly), or the contract price which is determined by an annual price adjustment exercise could be made to apply retrospectively to the start of the price review period (which could require a cash adjustment to be made between the parties). (ii) Price adjustment data. The values of the chosen indices are (or should be, if they are to be truly effective) derived from objective, published data. It will be central to the success of a price adjustment mechanism that information about the movement of a particular index is readily available, clear and unambiguous, accurate and is likely to continue to be published. This data also takes time to assemble. A price adjustment mechanism could specify a cut-off point for the assembly of current index value data as a defined point prior to the price adjustment date. Consequently there is an inevitable lag between the price adjustment date and the assembly of price data in respect of the relevant period preceding that date. (iii) The application period. The parties will need to define the application period in the price review mechanism, as the period of time from which data can be drawn in determining the values of the chosen indices (and with agreed values of the historical data often being applied within the GSA). The application period must precede the price adjustment date and it must be a period in respect of which published price data exists. (iv) The source of data. A GSA might provide for the situation where a particular source of pricing information ceases to exist, where a particular index ceases to be available or where an index is modified such that it no longer reflects the original intention of the parties. In this circumstance the usual provision is that the parties will jointly use reasonable endeavours to agree on a replacement

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Price Adjustment, UKBC-GASLNGS 493298620 (2023)

publication or index and that if they are unable to do so then an independent expert (40-004) will be appointed to determine an appropriate replacement publication or index. End of Document

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Price Volatility, UKBC-GASLNGS 493298616 (2023)

Price Volatility Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price Price Volatility 13-012 The common feature of any indexed price adjustment mechanism is its capacity for elasticity: prices could go up or down depending on the movement of the selected indices. A completely linear relationship between the contract price and a chosen index gives no protection against volatility in the movements of the chosen index. Flexibility and greater responsiveness to market movements in the gas pricing provisions could be secured at the expense of the risk of volatility, and a balance must be achieved between embracing price flexibility and maintaining price stability. There are several options for the parties to limit the scope for volatility within an indexed price adjustment mechanism. Limitations in the possible range of outcomes which would otherwise apply to open indexation are intended to mitigate undesirable impacts from undue levels of price fluctuation. The gas price provisions in a GSA could recite a floor (sometimes called a “bottom stop”) beyond which the contract price cannot fall, to protect the seller by guaranteeing the payment of a contract price which at a minimum meets the seller’s debt service coverage requirements and/or provides a reasonable return to the seller, and a ceiling (sometimes called a “top stop”) beyond which the contract price cannot rise, to protect the buyer against runaway price escalation. A contract price might be structured such that when a crude oil price index rises and exceeds a certain point then thereafter the percentage of the index which determines the contract price is decreased, for as long as the index remains high. This protects the buyer (in part at least) from the inflationary effects of high crude oil prices, and gives at least a partial decoupling of the otherwise linear relationship between crude oil prices and the contract price. Correspondingly, to protect the seller from the deflationary effects of indexing gas against depressed crude oil prices it could be that the percentage of the index which determines the contract price is increased when the crude oil price index falls below a certain point. This construction (sometimes called “Scurve pricing”, in recognition of the broad shape of the price curve which it applies) is illustrated below:

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Price Volatility, UKBC-GASLNGS 493298616 (2023)

The points at which the altered indexation percentages become applicable are called “kink points” (or as “inflexion points”). The range between the kink points in each case defines the contract price as the agreed percentage of the defined crude oil price (also commonly called “the slope”). 13-013 A GSA could also apply a two-tier price mechanism which in formula terms might, for example, say that the price (P) will be the lesser of the price calculated according to a conventional base price adjustment mechanism (P1) and a fixed price (P2):

In this example, the second price component could be a fixed price or it could be a price determined by reference to a different set of indices. This two-tier mechanism protects the buyer by imposing a lesser-of-the-two price selection. Consequently the seller loses the opportunity to gain from upward price indexation, beyond the floor price. Alternatively, the two-tier price mechanism could be applied the other way, i.e. to state that the price will be the greater of the two measures. This would protect the seller by affording access to upward price indexation, but at risk to the buyer.

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Price Volatility, UKBC-GASLNGS 493298616 (2023)

The seller might also suggest that the price adjustment provisions should provide for upwards only reviews, such that the contract price cannot go down in relative terms during the lifetime of the GSA. The buyer might however regard this as unfair and would require scope for upwards and downwards adjustment. 13-014 There is an inevitable relationship which exists through the indexation of gas prices against oil price movements. A barrel of oil has the generally-accepted energy equivalent of 5.8 million British thermal units (mmBtus) and so a prevailing oil price gives a conversion value per mmBtu. A slope which is set at 17.2 per cent of the oil price gives oil/gas price parity, and a slope which is set at a percentage of anything less or more than 17.2 per cent of the oil price leads to negative or positive disparity: OIL PRICE ($/BBL)

GAS PRICE (SLOPE @ 10%)

GAS PRICE (SLOPE @ 17.2%)

GAS PRICE (SLOPE @ 20%)

50

$5.00/mmBtu (discount to parity of 42%)

$8.62/mmBtu (parity)

$10.00/mmBtu (premium to parity of 16.1%)

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Further Pricing Issues, UKBC-GASLNGS 493298621 (2023)

Further Pricing Issues Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 13 - Price Further Pricing Issues 13-015 Several other gas pricing issues should also be considered: (i) Most favoured nation status. A buyer could seek assurance that the contract price which it is paying under the GSA is not greater than the price which the buyer’s competitors are paying under comparable contracts with the same seller, thereby economically disadvantaging the buyer in the downstream market. Protection for the buyer could be achieved by the insertion into the GSA of what is sometimes called a “most favoured nation” (MFN) provision. This is a term borrowed from the world of international trade relations, and such a provision would recite the intention that if the seller enters into a comparable agreement (which would require some careful definition) to sell gas to a third party at a price which is lower than the contract price then the seller must also offer that lower price to the buyer. In essence, the buyer is guaranteed to receive the same advantages that are afforded by the seller to its other buyers. The same principle might also be argued to apply in the seller’s favour where the buyer enters into a higher-priced GSA with another seller. An MFN provision is essentially a form of expedited gas price review which balances a GSA with comparable market contracts but such a provision can be difficult to police because of a lack of reliable information about such alternative arrangements and the problem of normalising gas sales and purchase arrangements which are not entirely like-for-like. It is also likely that a request from a buyer for such a provision will not be met favourably if there is anything like a seller’s market for gas sales in operation at the time of negotiating the GSA (and vice versa). (ii) Bundled pricing. Where the seller is processing gas prior to delivery to the buyer then in calculating the contract price the seller should ensure that the contract price also reflects the additional costs of such processing. The same principle applies to costs incurred by the seller in transporting gas to the delivery point. These additional cost components could be reflected separately in a disaggregated price construction or (more usually) could be contained within a single bundled contract price payable by the buyer. (iii) Nameplate and effective pricing. It may be that the seller is or could be selling gas to several buyers. Giving a lower contract price to a particular buyer could cause some ill-will amongst the seller’s existing buyers and could set a dangerous precedent for a lower price for sales to subsequent buyers. A lower contract price could also trigger the application of an MFN provision (see above) against the seller. A device which is sometimes used to secure a lower effective price for a particular buyer, but to obviate the risks to the seller in doing so, is for the seller to reserve a high nameplate price in the GSA but to offer other commercial inducements to the buyer (which might not be directly referenced in the GSA) such as certain quantities of free gas or the free or discounted performance of services such as transportation, processing or operational assistance which the buyer would otherwise pay for. These other inducements could have the effect of giving a lower effective price to the buyer whilst at the same time maintaining a higher nameplate price.

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Further Pricing Issues, UKBC-GASLNGS 493298621 (2023)

(iv) Offset pricing. In a cross-border gas sale where the seller is required to deliver gas at a delivery point which is within the buyer’s territory then, depending on how the principles of gas transportation are structured, it could be that the seller is transporting gas through a pipeline which is owned by the buyer and for which a tariff and/or capacity payments (Ch.29) will be payable by the seller to the buyer. This would result in money going from the seller to the buyer and from the buyer to the seller. The same principle applies where the buyer processes gas at the delivery point on behalf of the seller and charges the seller a processing fee for that service. In either case, amounts could be offset between the parties. In calculating the required contract price, where such offset pricing could apply, the starting point for the seller will be a determination of the net receipt (i.e. the price net of the transportation tariff or the processing fee which the seller is obliged to pay to the buyer) which the seller will expect to receive for the gas which it is selling (at least where cost plus pricing is applied—see above). (v) Flat charges and capacity charges. A GSA could provide that a seller receives a flat charge payable periodically (e.g. monthly) to cover critical fixed cost elements of the seller’s operation such as operating expenditures and debt service costs, effectively in consideration of the seller’s making gas delivery capacity available to the buyer. The periodic charge will be payable by the buyer separately from amounts invoiced and due for gas supplied by the seller and will be payable irrespective of whatever quantities of gas the buyer requests for delivery or takes delivery of. It will be a matter for debate between the seller and the buyer as to whether the periodic charge remains payable during an event of force majeure (35-001) affecting either of them. Where a GSA services a peak shaving regime (2-010) the pricing mechanism could be structured such that the buyer pays a periodic capacity charge for maintenance of the seller’s facilities during the contract year and will pay a separate commodity charge for any quantities of gas which are requested for delivery during peak periods. (vi) Price regulation. In certain jurisdictions the price of gas could be regulated by central or local government and the parties should recognise that the application of such price regulation could overrule the economic bargain which the parties have struck under the GSA. Any hardship which is caused by such price regulation could be open to being relieved by the price adjustment or price volatility provisions or the price review provisions in the GSA but these provisions could be slow to respond and might not offer complete relief. Where the degree of price regulation which is applied is such that it becomes uneconomic for an affected party to continue to perform the GSA then the affected party could seek relief under a hardship provision (14-004) or under a material adverse change provision (35-018), and an economic termination right (39-005) might become applicable. On the other hand, price review provisions (14-006) might be precluded from application in these circumstances, since the parties might have agreed not to seek to deny a government-mandated bargain through the terms of their GSA. A stabilisation provision in a host government agreement which relates to the wider gas commercialisation project might also offer some assistance to an affected party. (vii) Price migration. A GSA might provide for a wholesale revision of the contract price to allow for rebasing from a commodity-indexed price to a hub-based price (see above) where a suitable pricing hub emerges during the lifetime of the GSA. Such a transition will typically be dependent upon proof that a pricing hub really has come to exist. This could depend, for example, upon the establishment of an objective body of evidence which demonstrates that there is a hub with a sufficient volume of gas trades over a defined period of time and that a reliable mechanism for reporting traded prices and other relevant data has come into existence. (viii) Volume discounts. A GSA might provide for a sliding scale of incremental prices, where increased volumes of gas are paid for at reduced price levels. This structure is intended to incentivise the buyer to buy more gas from the seller. The parties will need to be careful to structure the increments such that the seller is not discouraged from selling increased volumes of gas because

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of unsustainably lower prices, whilst at the same time ensuring that the price discounting is such that it makes economic sense for the buyer to buy increased volumes of gas. End of Document

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Introduction, UKBC-GASLNGS 493298624 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 14 - Price Review Mechanisms Introduction 14-001 The provisions considered in this chapter relating to gas and LNG price reviews apply equally to contracts for the sale of pipeline gas and LNG. Every sales contract will recite a contract price which is payable for the gas being sold. Sometimes a long-term sales contract might provide a mechanism for what happens if, over the lifetime of the sales contract, one of the parties becomes of the view that the contract price needs to be adjusted because it is no longer appropriate. Such a price review mechanism might also be applied mechanistically in accordance with a timetable set out in the sales contract, rather than reactively to particular circumstances. Other options for the parties to consider in respect of the consequences of what might be regarded as an unsustainable contract price are the (probably unlikely) possibility of force majeure relief and an economic termination right in the sales contract. A most favoured nation status pricing provision also reflects a form of price adjustment mechanism between the parties. Price review mechanisms (in whatever form they take) are partially based on an assumption that a sales contract should always reflect some sort of economic equilibrium and fair allocation of risk and reward between the parties. This is not necessarily so, although in making this statement much will depend upon what the selected governing law of the sales contract is. End of Document

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Price Movement, UKBC-GASLNGS 493298623 (2023)

Price Movement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 14 - Price Review Mechanisms Price Movement 14-002 At one end of the scale, a contract for the sale of a single clip of gas or a single cargo of LNG will typically have a fixed price and will have a brief existence in the world of comparable economic circumstances. At the other end of the scale, a long-term sales contract (and, critically, the contract price) will exist within a world of continuously evolving market circumstances. These circumstances could adversely affect the seller or the buyer over the lifetime of the sales contract, by reference to the contract price, such that there is enduring misalignment between the contract price and the market. An example of such a misalignment is where the contract price under a long-term sales contract is indexed to the movement of crude oil or crude oil product prices. Increased liquidity and competition in global gas markets has led to relatively reduced gas prices, whereas the price of crude oil has generally continued on an upward trajectory. A contract price indexed to crude oil prices could be disproportionately high for a buyer in comparison to a prevailing market gas price. The mechanisms in the sales contract for price adjustment and to moderate price volatility (13-006) could offer some coordination and realignment of the contract price in the sales contract with surrounding market circumstances but they could be unable to accommodate more radical alterations in the underlying economic regime. Where the comparable market price for gas has risen beyond the contract price payable under the sales contract then the buyer should be happy to have locked in a supply of gas at less than the market price. The seller might regret that it is missing the opportunity to sell the gas which is committed under the sales contract at that higher market price but (arguably) the seller should originally have priced the gas in the sales contract at a level which meets the seller’s requirements and so should be content to proceed on this basis, notwithstanding the upward market price movement elsewhere. In such a circumstance the seller is, arguably, suffering little more than commercial envy. Where the comparable market price for gas has fallen below the contract price payable under the sales contract then it is the seller which should be happy to have locked in a supply of gas at a price which is greater than the market price. The buyer on the other hand may be troubled by the prospect of paying for gas under the sales contract at a contract price which is greater than the comparable market price. This could be more than a matter of commercial envy, since gas which is bought by the buyer under the sales contract will be uneconomic where, for example, the buyer is reselling that gas into a competitive market which benefits from lower comparable prices. The indexation of a contract price to the price of crude oil or refined oil products has often led to disparity between the indexed contract price (which has remained high as oil prices have generally remained high) and comparable market gas prices (which might have dropped because of combination of increased supply, market liberalisation and increased spot trading). The consequence of this is that the contract price does not track the market price, leading to economic difficulty for at least one of the parties. 14-003 The usual price volatility control mechanisms in the sales contract could be inadequate to cope with the impact of prolonged and/or significant changes in market circumstances. Force majeure relief is unlikely to offer much assistance since the right to force majeure relief is typically disapplied for changing economic circumstances (35-009). A more fundamental adjustment of the contract price from time to time might be required and it may be that the more radical solution of a price review provision—whether a hardship provision or a price revision provision—is included in the sales contract in order to address these contingencies. Notwithstanding all the noble efforts of the parties to the sales contract to

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Price Movement, UKBC-GASLNGS 493298623 (2023)

predict the future movement of gas prices and so to select a pricing proposition which (they believe) addresses the prospect of changing economic circumstances, the inclusion of such price review mechanisms is a recognition that the science of price prediction is inevitably prone to failure. Where all or part of the costs of a gas commercialisation project are met through the assistance of third party lenders (5-013) then the lenders (to the seller or to the buyer) might be nervous of any price review mechanisms and the scope for revenue volatility which they might suggest and this could in turn affect the overall bankability of the project. On the other hand, however, the application of such mechanisms could be to the overall benefit of the project and this could be seen as a positive enhancement to the project’s overall bankability. Such mechanisms usually have the ability to cut both ways. 1

Footnotes 1

In contrast, note the AIEN GSA (6-002), where there is not a conventional price review mechanism. Rather, the GSA applies a one-way provision in favour of the seller (which is as much about stabilisation as it is about responding to changed economic circumstances). Where a change in laws (as defined by the GSA) has taken place which results in an increase in the seller’s costs or a decrease in the seller’s revenues beyond a defined percentage threshold then the seller can notify the buyer of its required adjustment of the base price in order to keep the seller protected from the adverse economic circumstances which it has thereby suffered.

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Hardship, UKBC-GASLNGS 493298626 (2023)

Hardship Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 14 - Price Review Mechanisms Hardship 14-004 A hardship provision in a sales contract ordinarily applies to the effect that if over time there are movements in the market relative to the contract price which result in undue and unforeseen hardship (to the buyer or the seller) then the parties will meet to discuss and seek to revise the contract price in the sales contract, which could be done by reference to the base price, the choice of indices or the percentage weightings assigned to particular indices, or could be an adjustment of the entire contract price, to something which relieves the hardship. Even in the absence of such a provision in the sales contract it would still be open for an aggrieved party to seek a dialogue with the other party in order to revise the contract price to take account of any hardship suffered. It would be prudent for parties considering inserting a clause of this nature into the sales contract to agree what hardship means exactly (such as, for example, by reference to the failure of a party to make a defined economic return) rather than simply relying on the subjective opinion of a party that something akin to hardship has arisen. Hardship is a relative concept, capable of subjective definition—as an example, it is questionable whether a party’s alleged hardship should be assessed solely in respect of the subject sales contract or by reference to a party’s wider portfolio position. A sales contract might also provide that a party cannot claim relief for hardship which that party has somehow caused for itself. Furthermore, in order to preclude the argument that a hardship provision represents little more than agreement to agree between the parties and so is unenforceable on that basis, such a provision might go on to state that if the parties are unable to agree a basis for adjustment of the contract price then an independent expert (40-004) or an arbitral tribunal (40-006) will be appointed to decide the issue. This could go to a determination not only of a basis for possible adjustment of the contract price but also of the preceding issue of whether hardship has indeed arisen, depending upon how the terms of reference are structured in the sales contract. 14-005 In 2003 the International Chamber of Commerce (ICC) issued a standard provision 2 to address the alleviation of hardship, which the ICC suggests can be inserted into commercial contracts. The clause did not specifically define hardship, but the operational ambit of the clause indicates what the ICC meant by hardship since the clause was intended to apply where, in respect of an affected party, “… the continued performance of its contractual duties has become excessively onerous due to an event beyond its reasonable control which it could not reasonably have been expected to have taken into account at the time of the conclusion of the contract; and that it could not reasonably have avoided or overcome the event or its consequences”. The ICC’s clause went on to provide that if hardship arose then the contracting parties were bound, within a reasonable time, to negotiate alternative contractual terms which reasonably allowed for the consequences of the alleged hardship event, and, failing which, the party which was claiming hardship would be entitled to terminate the contract. The ICC hardship clause is not widely used in GSAs, and if it was used it would require significant modification.

Footnotes 2

Available at http://iccwbo.org/find-a-document/.

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Hardship, UKBC-GASLNGS 493298626 (2023)

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Price Revision, UKBC-GASLNGS 493298627 (2023)

Price Revision Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 14 - Price Review Mechanisms Price Revision 14-006 A price revision provision might be inserted into a sales contract. Such a provision will provide that the contract price will be subject to adjustment either: (i) at the request of a party which can demonstrate that the contract price which is set by the sales contract is no longer appropriate in light of prevailing market conditions; or (ii) by periodic application (set, for example, by reference to certain defined anniversary dates of the sales contract). The contract price which is set by the sales contract, determined by reference to the base price, the choice of indices or the percentage weightings assigned to particular indices, could be revised to something which is agreed (or which is determined) to be more appropriate to the prevailing market circumstances. This typically applies to protect a buyer where an oil index-linked price for gas has forced up the gas price with a rising oil index price, but it could apply in the opposite direction to protect a seller in a time of falling oil prices. In contrast to a hardship provision (see above), which comes into play only when hardship is alleged to have arisen, a price revision provision depends for its application either upon proof that the contract price is in some way out of step with prevailing market conditions (which might not necessarily result in hardship) or upon the timetabled conditions for application having occurred. The price revision option will generally be preferable for both parties, assuming it is easier to prove that a contract price is inappropriate, rather than that hardship has arisen, and particularly so for the seller in a rising market where it could be difficult to prove that hardship has arisen for the seller because of the seller’s inability to command greater comparable prices. 3

Footnotes 3

See Superior Overseas Development Corp and Phillips Petroleum (UK) Co Ltd v British Gas Corp [1982] 1 Lloyd’s Rep. 262 CA (Civ Div), which is notable because a price revision provision based on alleged substantial economic hardship was exercised by the seller to protect itself against perceived inadequate project returns in a rising market.

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Common Features, UKBC-GASLNGS 493298625 (2023)

Common Features Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 14 - Price Review Mechanisms Common Features 14-007 Both forms of price review mechanism described above, hardship provisions and price revision provisions, are effectively a form of material adverse change provision (35-018) in that they each allow a previously-struck economic bargain in a sales contract to be reopened because of the impact of adverse extraneous circumstances. Several features will be common to each price review mechanism in a sales contract: (i) The trigger for application of the price review mechanism. The sales contract should recite the trigger for exercise of the price review mechanism by either party. The trigger event needs to be drafted carefully, since it is a condition precedent to the invocation of a mechanism which can have a significant effect on the continuing economic bargain which the sales contract creates. The necessity of ensuring that the correct trigger event has been applied as a precursor to commencing a price review was illustrated in Esso Exploration & Production UK Ltd v Electricity Supply Board. 4 In this case, which related to a GSA with a duration of 15 years, Esso gave notice of its intention to trigger the application of the price revision mechanism. Part of the trigger mechanism required the consideration of the market price for gas being supplied on a comparable basis, but Esso based its notice on the price of relatively short-term supplies of natural gas because there was no active market for the long-term sale of natural gas on commercial terms which was directly comparable to the GSA. The court agreed with ESB’s contention that Esso’s price revision notice was invalid, because it had failed to apply the required comparable data. Consequently, said the court, the arbitral tribunal intended by the GSA to resolve pricing disputes between the parties had no jurisdiction to act. (ii) The mechanism for price review. A price review mechanism could take the form of an obligation only to enter into good faith negotiations with a view to agreeing a revised contract price (although such a provision could constitute an agreement to agree which could be unenforceable), or it could reflect the application of a mechanical formula for the determination of what the contract price should be adjusted to. An obligation to negotiate in good faith is not entirely devoid of enforceable meaning under English law. In Petromec Inc v Petroleo Brasileiro SA Petrobras (No.4) 5 the Court of Appeal held that an obligation to negotiate in good faith could be enforceable if possessed of sufficient certainty of intent. (iii) Dispute resolution. A price review mechanism might recite that if (or, perhaps, when) the parties are unable to agree on what the new contract price should be (or indeed whether the grounds for review of the contract price apply) then the dispute will be referred to an independent expert or to an arbitral tribunal for determination. Most price review disputes are determined in this manner and so there is virtually no body of publicly-available precedent which can be relied upon to guide the parties as to possible outcomes. Abrogating responsibility for determining the intended operation of a price review provision to an independent arbiter, and giving freedom and flexibility to decide, has the advantage of requiring less prescription in the terms of the sales contract but the consequences of doing so could be more dramatic than the parties had envisaged (see below). However, as much as it makes sense for the parties to define the range of parameters which should be taken into account when applying a price review provision under a sales contract, there is also a danger that being too prescriptive

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will impose an undue constraint on the intended operation of the process. The sales contract might offer little direction as to what the chosen arbiter should be directed towards considering in the discharge of its functions. In the absence of direction the arbiter could look towards a broad appraisal of the value of the contracted gas relative to the applicable market, and towards an outcome which applies some measure of restorative fairness between the contracting parties. This outcome could represent an evolution of the original bargain between the contracting parties, and could lead to the risk of an outcome which one or both of the contracting parties might regard as revolutionary. In the absence of adequate contractual guidance being given to the arbiter a competent court might also be called upon to address any uncertainty. This is not a satisfactory outcome for the contracting parties because it removes their perceived ability to manage their own sales contract. In Esso Exploration & Production UK Ltd v Electricity Supply Board (see above) the court took the view that, in light of the way the GSA had been drafted, the role of the arbitral tribunal was necessarily limited to determining the amount of the intended price comparator, and that the tribunal’s role did not extend to determining the wider construction of the price revision mechanism in that GSA. In Contact Energy Ltd v Attorney General 6 the court held that a price review mechanism in a GSA which referred disputes between the contracting parties to an independent expert for adjustment only gave that expert the right to determine what would be an appropriate replacement index, but did not give the expert the right to determine a wider dispute as to how that replacement index should be applied to the underlying GSA. (iv) Application of the adjusted price. A price review mechanism should state whether a resultant adjusted contract price should have retrospective effect or whether it will only apply prospectively from the effective date of the adjustment, and also the extent of the prospective adjustment. 7 A price review provision could, for example, impose upper and lower limits beyond which the adjusted contract price cannot be set, which could be effected through a comparative reiteration of any floor or ceiling prices which the sales contract already provides for. The buyer should also consider that where gas is bought under a form of sales contract which contains an economic termination right in favour of the seller (39-005) then a reduction of the contract price in the buyer’s favour could have the consequence of accelerating the prospect of termination of the sales contract by the seller on this ground. (v) Frequency of application. There is a balance to be achieved between protecting the parties from suffering the consequences of changed market circumstances and slavishly applying a price review mechanism against every market movement. A price review mechanism could state a limit upon the frequency with which a review of the contract price can be undertaken so that a party cannot exercise these mechanisms with unrealistic frequency. (vi) Excluded rights of application. Where governmental regulation of a contract price under a sales contract is possible, the agreed price review mechanism could be precluded from application where the contract price has been modified by such regulation. A price review mechanism might be seen by the parties as being intended only to apply to the consequences of changed market circumstances in light of the economic bargain which was agreed by the parties, rather than to be used to overturn government-imposed price controls, although in principle there might be some difficulty in identifying the real difference between extraneous economic and regulatory circumstances. A stabilisation provision in a host government agreement which relates to a wider gas commercialisation project might also offer some assistance to an affected party.

Footnotes 4 5

Esso Exploration & Production UK Ltd v Electricity Supply Board [2004] EWHC 723 (Comm). Petromec Inc v Petroleo Brasileiro SA Petrobras (No.4) [2006] EWCA Civ 1038. See also Compass Group UK and Ireland Ltd (t/a Medirest) v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200.

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6 7

Contact Energy Ltd v Attorney General [2005] UKPC 13 PC (New Zealand). In Superior Overseas Development Corp (see above) the majority opinion of the Court of Appeal was that the adjustment of a price under a price review provision which was intended to relieve substantial economic hardship should be applied to off-set the whole of the economic hardship and not merely the substantial part; at first instance, however (and in the dissenting judgment in the Court of Appeal) the view was taken that the price adjustment should be such as to remove the substantial element of the hardship but should not remove hardship altogether.

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Price Review in Practice, UKBC-GASLNGS 493298622 (2023)

Price Review in Practice Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 14 - Price Review Mechanisms Price Review in Practice 14-008 Hardship provisions and price revision provisions give some comfort to the parties that an agreed contract price in a long-term sales contract will adjust to reality over time, subject to the time which will be taken for any benefit which might be conferred by the application of such provisions to be felt by the parties. This may be of particular importance where a long-term sales contract is signed in a volatile or emerging market, and could be helpful to take account of relatively predictable but dramatic events like market liberalisation or oil price surges or collapses. On the other hand, such provisions are notoriously difficult to draft and negotiate and may be seen as a step on the road to inevitable dispute. Also, given the sums of money which can potentially be at stake in the adjustment of pricing provisions in a long-term sales contract, where even modest adjustments can lead to sizeable consequences, such provisions are increasingly likely to become the subject of friction between the parties and are less likely to be treated as amicable reapportionments of the economic balance of the underlying contract. The dangers of not paying enough attention to the detail of how a price review mechanism should be intended to operate are well-illustrated by the Gas Natural v Atlantic LNG case, 8 which was heard in the United States District Court for the Southern District of New York. 9 In this case Atlantic LNG, the seller, triggered a price revision clause under an SPA in order to procure a significant increase in the price payable for LNG by the buyer, Gas Natural. The parties were unable to agree on a possible adjustment of the pricing provisions in the SPA and so the seller initiated an arbitration process in order to settle the matter. The buyer’s counter-claim argued for a significant decrease in the price. The award which was eventually made by the arbitral tribunal (seemingly of its own accord, without consulting either of the parties and resulting in an outcome which neither of the parties had intended) introduced a new two-part pricing mechanism into the SPA, which was applied with retrospective effect to the time when the seller had first triggered the price revision clause. This new pricing mechanism worked against the interests of the seller and left the seller obliged to make a significant reimbursement to the buyer. The seller then appealed in court against the decision of the arbitral tribunal, claiming that the tribunal had exceeded its authority by imposing the new pricing mechanism and so rewriting the SPA between the parties. The court, however, upheld the decision of the arbitral tribunal, on the grounds that the price revision clause in the SPA did not prescribe any particular limits on how the price revision should be structured and that the tribunal had not in fact sought to exercise a power which it did not have. 14-009 The key lesson to be learned from the Gas Natural case is that a price review mechanism should be drafted as explicitly as possible, with clear parameters to guide any expert or arbitrator in making any adjustments. A lack of sophistication in the wording of the price review mechanism can mean that a fair degree of discretion is bestowed on an independent arbiter, and the exercise of that discretion can lead to some unwelcome surprises. Traditional price review mechanisms are often characterised by vagueness because they were intended to manage the impact of market changes which were unforeseeable at the time of entering into the sales contract but without being unduly prescriptive. This vagueness, which is often manifested by opacity in any of the wording of the trigger events, the intended reaction of the parties and the remit of the intended arbiter, leads to different interpretations between the contracting parties regarding the intended operation of the price review mechanism. Because the contracting parties have a lot to win or lose on an adjustment

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Price Review in Practice, UKBC-GASLNGS 493298622 (2023)

to the contract price their inevitable differences of opinion will lead to dispute if they cannot agree a middle ground, and the outcome of the dispute could be anything but predictable. Price review mechanisms also perform a vital role, however, in that they seek to allow the contracting parties to make adjustments which allow the continuation of the long-term contractual relationship created by the sales contract despite underlying market volatility. These mechanisms have a real value. That value would be enhanced by making sure such mechanisms are drafted with clear, prescriptive wording as to every step of their intended operation. A mechanistic approach might seem somewhat rigid as a means of addressing future uncertainty but it could represent the best chance of success.

Footnotes 8 9

Gas Natural Aprovisionamientos, SDG, S.A. v Atlantic LNG Company of Trinidad and Tobago (2008) WL 4344525 (S.D.N.Y.). The case is interesting also because it makes public the sort of dispute which is almost always kept private between the contracting parties. Perhaps instructive of how this would come out is a quote from the written award of the arbitral tribunal at the time: “a price reopener proceeding imposes on the Tribunal obligations that are broader than a traditional arbitration because the Tribunal is instructed to make commercial decisions based on very general standards and criteria”.

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Introduction, UKBC-GASLNGS 493298629 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 15 - Collateral Support Introduction 15-001 The provisions considered in this chapter relating to the provision of collateral support apply equally to contracts for the sale of pipeline gas and LNG. Since a sales contract is effectively an agreement for the exchange of gas and money between the seller and the buyer, each party will be keen to ensure that the other party has the wherewithal to perform its anticipated contractual commitments for the lifetime of the sales contract. This might entail the provision of some form of collateral support in respect of each party’s payment commitments. Collateral support can come in a variety of forms, and the most appropriate form should be selected for the particular commercial circumstances. End of Document

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Collateral Support for the Buyer, UKBC-GASLNGS 493298631 (2023)

Collateral Support for the Buyer Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 15 - Collateral Support Collateral Support for the Buyer 15-002 Under a sales contract a buyer will have significant payment obligations for gas nominated or otherwise required for delivery and under any take and pay or take or pay commitments (16-003, 16-004). A termination payment might also become due for payment by the buyer (39-007). In essence the buyer’s principal obligation is to pay money to the seller. Unless the buyer is required to pre-pay for its gas purchases, which is itself a form of payment protection for the seller, there is always a risk over the lifetime of a sales contract that the buyer will default on its obligation to make payment when due, although the extent of this risk varies according to the circumstances of the individual buyer and the particular gas commercialisation project. It also varies according to the duration of the purchase commitment; in a short-term contract creditworthiness support issues could abate accordingly. This risk should always concern the seller (and any third party lenders to the seller—5-013) however, and wherever possible should be mitigated by the sales contract. The seller should also recognise that even if the buyer is creditworthy at the point of execution of the sales contract, circumstances could arise over the lifetime of the sales contract which might diminish the economic value of the buyer. It will therefore be of critical interest to the seller to ensure that the buyer is, and (to the extent that prediction is possible) will for the lifetime of the sales contract be, possessed of sufficient creditworthiness to meet all of its payment obligations. The seller could require the provision of some form of collateral support for the buyer’s commitments, typically to be put in place simultaneously with the execution of the sales contract or required thereafter as a condition precedent (10-005) to the effectiveness of the sales contract. 15-003 Collateral support is a shorthand term used to describe the procurement by a party of some form of additional support for the satisfactory performance by that party of its obligations under a sales contract, which could be obligations of payment or of wider performance. That additional support is typically provided by a third party, which may or may not be related to the party which is procuring the collateral support. The term “collateral” is used to indicate the secondary, subordinate, or parallel nature of the support provided, particularly in order to distinguish that support from any original (or primary) obligation, but this is not an entirely accurate term and most forms of collateral support will be primary obligations in their own right. Where collateral support in respect of the buyer is not required at the outset by the seller the sales contract might contain a mechanism entitling the seller to call for the provision of such support during the lifetime of the sales contract (sometimes called a “re-guarantee provision”), to apply if there is a later material deterioration in the creditworthiness of the buyer (which could also be occasioned by a change of control—38-008). The sales contract might specify the form of the collateral support which the seller requires in the event that such a re-guarantee right is exercised. The trigger event for the exercise of the seller’s right to call for a re-guarantee during the lifetime of the sales contract could simply be the seller’s subjective opinion that the buyer has experienced a material deterioration in its creditworthiness. The buyer might be reluctant to accept this formulation, however, for fear that the seller might exercise such a right capriciously and, alternatively there could be a requirement that the trigger event will be the satisfaction of an objective test such as audited proof that the buyer’s liquidity or other test of financial standing has fallen below a predetermined ratio or a declaration that the

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Collateral Support for the Buyer, UKBC-GASLNGS 493298631 (2023)

buyer’s credit rating has been downgraded to below a certain level (where the buyer has a quoted credit rating from a recognised credit rating agency). If the buyer fails to provide the required re-guarantee support within any specified deadline then the seller could have the option to suspend deliveries of gas to the buyer and even to terminate the sales contract (39-005). Correspondingly, a sales contract might provide that any re-guarantee which has been provided in favour of the seller could be relinquished where the buyer’s creditworthiness is restored to its previous position. This sort of iteration is less often found in practice, however. Once collateral support is put in place it can be difficult to give up. Given the magnitude of the sums involved in the provision of collateral support for the full value of a sales contract (see below) it might also be necessary to put in place some form of partial, rolling cover. This could, for example, be structured as a parent company guarantee or a bank guarantee (see below) which is given for a defined monetary value equivalent to the value of the gas sales proceeds for a defined period of time which, if it is at any time called down by the beneficiary, has to be replenished to the original value by the party which procured the collateral support (a mechanism sometimes called a “top-up”). A failure to so replenish the original collateral support could be a breach of the sales contract’s terms which leads to a termination right for the affected party. The collateral support which the buyer offers in respect of its obligations under a sales contract will also have a bearing on the bankability of the overall gas commercialisation project (5-013) where the seller is financing its development costs. End of Document

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Collateral Support for the Seller, UKBC-GASLNGS 493298630 (2023)

Collateral Support for the Seller Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 15 - Collateral Support Collateral Support for the Seller 15-004 As for the seller, its primary obligation is one of performance (i.e. the production and possibly also the transportation of gas) rather than payment and the track record of the seller’s experience and reliability should be of greater concern to the buyer than the seller’s creditworthiness. Payment could also be due from the seller to the buyer in certain circumstances however, and this might cause the buyer to require the seller to furnish some form of collateral support in respect of those payment commitments. A sale of gas by a marketing company rather than by a gas producer might particularly cause the buyer to require the provision of some form of collateral support, as might the sale of gas by a joint venture company. 15-005 The seller could have an advantage over the buyer in the cross-fire of demands for collateral support. Since a sales contract is effectively a vehicle for the exchange of gas for money, if the seller has produced reserves certificates to demonstrate that it has sufficient committed gas for the lifetime of the sales contract (12-002), can prove ownership of or access to the necessary gas production and/or transportation facilities and if the sales contract contains provisions protecting the deliverability of that gas in favour of the buyer (11-012) then the obligation of the seller to prove its ability to perform its part of the bargain is significantly satisfied—whereupon the onus could shift to the buyer to demonstrate (or to procure the guarantee of) the availability of corresponding amounts of money for the anticipated lifetime of the sales contract. End of Document

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Forms of Collateral Support, UKBC-GASLNGS 493298632 (2023)

Forms of Collateral Support Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 15 - Collateral Support Forms of Collateral Support 15-006 Where a party to a sales contract has agreed to provide collateral support in respect of its obligations, the resultant collateral support could take a number of forms. The collateral support could take the form of a surety for payment or it could reflect a more mechanical arrangement which ensures that payment is made by the buyer. (i) Parent company guarantee. Commonly described as a parent company guarantee or a corporate guarantee, this is a form of guarantee given by an entity (often, but not always, a parent company) to a person (the beneficiary) in respect of certain contractual commitments of the guaranteed party. A guarantee can present difficulties in application since in practice it is unlikely to be honoured on demand and without question by the guarantor and further enforcement action might be necessary. There is no industry-wide standard or model form guarantee and so the terms of a guarantee will need to be negotiated. That said, most guarantees tend to follow a relatively formulaic structure. A guarantee is a contract in its own right, and requires all the legal characteristics of a contract in order to be enforceable (and, additionally, is typically subject to the particular requirement of being in writing under English law). There are several essential, defining features of a true guarantee. The guarantor promises to be responsible for the debt or default of the guaranteed party (or primary obligor), and the guarantor’s liability under the terms of the guarantee will not ordinarily come into existence unless and until the primary obligor fails to perform the primary obligation. Thus, the obligation of the guarantor to the beneficiary under the guarantee can be said to be secondary and not primary. The guarantee should be careful to define the primary obligation to which it applies. If the primary obligation is the performance of a defined obligation, the guarantee will be of the performance of that obligation (and the guarantee will commonly be described as a performance guarantee). If, however, the primary obligation is the payment of a defined sum of money, the guarantee will be of that payment (and the guarantee will commonly be described as a payment guarantee). These are not rigid demarcations. A guarantee is usually also written so that it can only be called upon by the beneficiary in order to remedy a breach of the underlying obligation and not so that it can be applied votively by the guarantor in order to make good a default of the primary obligor. Ordinarily, the guarantee is an accessory to the primary obligation, with an existence conditional and dependent upon the existence of the primary obligation. Thus, if the primary obligation (the sales contract) is discharged, terminated, or becomes void the guarantee could similarly cease to exist. Because the guarantee is an accessory to the primary obligation, any defects in the enforceability of that primary obligation (such as, for example, that it is void as a penalty) should equally relieve the guarantor. That said, there are a number of circumstances in which a guarantor could still find itself liable to the beneficiary, notwithstanding the apparent unenforceability of the primary obligation. The liability of the guarantor under the terms of the guarantee should be no greater than the liability of the primary obligor under the terms of the primary obligation. Some guarantees also contain a provision stating that the guarantor will also be liable as principal obligor (or as a principal debtor), by giving a direct obligation in favour of the beneficiary. This is an attempt to preserve the guarantor’s liability in circumstances where the guarantor might otherwise be released from liability under the guarantee. Such a provision will typically be viewed as having self-standing effect, and will not automatically convert what would otherwise have been a guarantee into an indemnity. A guarantee should be written so that it clearly addresses the extent of the guarantor’s undertaking. In particular, the guarantee should make clear whether the amount being guaranteed for payment includes accrued interest and any incurred costs, charges, or expenses. The essential issue to note here is the extent to which the guarantor will enjoy a cap on its liabilities under the guarantee

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(and the extent, or even the very existence, of the cap will be an issue of obvious concern to the beneficiary). This will be a commercial point in favour of the guarantor. If the guarantor’s commitment under the guarantee extends to an amount which is limited under the primary obligation then de facto the guarantor’s liability will be capped at the same amount (excluding any agreed additions of interest or costs). If there is no cap on the extent of the liability of the primary obligor under the terms of the primary obligation then the guarantor’s corresponding liability will also be uncapped. To mitigate this therefore a guarantor could impose a specific cap on its overall liability under the guarantee. (ii) Demand guarantee or documentary credit. Shorter term liquidity concerns might be addressed by a form of guarantee which is issued by a bank or other financial institution. Such a guarantee could take a number of forms. A demand guarantee (sometimes called a “performance bond”) represents the strict liability of an issuing bank to pay a specified monetary amount to a named beneficiary, on demand by the beneficiary or upon the presentation of certain specified documents, which is typically exercised with reference to a default in payment which occurs under an underlying primary obligation. The International Chamber of Commerce (ICC) has published the Uniform Rules for Demand Guarantees (URDG 758), as a body of trade rules which can be applied to the terms of any demand guarantee which indicates an intention to apply URDG 758 unless the demand guarantee expressly modifies or excludes any of URDG 758’s rules. A standby letter of credit is essentially a form of demand guarantee which is more commonly used in the US. The ICC has published International Standby Practices 98 (ISP 98), as a body of trade rules which can be applied to the terms of a standby letter of credit. A documentary credit represents the strict liability of an issuing bank to pay a specified monetary amount to a named beneficiary on behalf of a named requesting party when a nominated condition arises. The ICC has published the Uniform Customs and Practice for Documentary Credits (UCP 600), as a body of trade rules which can be applied to the terms of any documentary credit which indicates an intention to apply UCP 600 unless the documentary credit expressly modifies or excludes any of UCP 600’s rules. Documentary credits can be further classified in a number of ways: (a) Revocable and irrevocable credits. This distinction relates to the ability of the issuing bank to revoke the documentary credit without reference to the beneficiary. UCP 600 applies solely to irrevocable credits. Revocable credits, which are a relatively poor assurance of payment, have effectively become obsolete. (b) Transferable and non-transferable credits. If a documentary credit is expressed to be transferable the beneficiary is entitled to transfer its interests under the credit to another person, and that other person will be the second beneficiary of the documentary credit. Under UCP 600 the issuing bank is not obliged to accept the transfer of a documentary credit except where the issuing bank consents to do so. Transfer of the documentary credit itself should be distinguished from an assignment of the proceeds of the documentary credit by the beneficiary. (c) Revolving credits. Most documentary credits are issued to finance a single transaction and will be depleted and extinguished as the underlying transaction is concluded. However, a documentary credit could be structured as a revolving credit whereby from time to time, as it is drawn down by the beneficiary, it is replenished by the issuing bank. There is no guarantee that the issuing bank will renew a documentary credit when it becomes time to do so, particularly if it appears that the party whose commitments are being so guaranteed has or might become less creditworthy and the documentary credit has been, or might be, called upon. This is not the same as a construction under a contract whereby the party obliged to procure the issue of a documentary credit undertakes to procure the periodic reissue of a new documentary credit when an existing documentary credit has been drawn down (see above). The essential distinction between a demand guarantee (or a standby letter of credit) and a documentary credit is that the former represents a secondary payment obligation, triggered principally by a payment default under a principal payment obligation and so providing security against non-performance, whereas the latter represents the performance of a primary payment obligation in its own right. In the case of both a demand guarantee (or a standby letter of credit) and a documentary

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credit, payment must be made by the issuing bank when required—the payment obligation is autonomous and abstract, and is not conditioned by the validity of an underlying obligation, by any disputes between the requesting party and the beneficiary or by any defences to or objections to payment which might otherwise apply in favour of a guarantor. For this reason a parent company guarantee will usually contain an express disclaimer (in the guarantor’s favour) that it is, or that it is to be construed as or argued to be, any of a demand guarantee, performance bond, standby letter of credit or documentary credit. (iii) Letters of comfort. The obligations of a party under a sales contract could be referenced or secured (in a manner of speaking, since the extent of the security is debatable) by the issue of a form of undertaking generally called a “letter of comfort”. The obligations which are so referenced (or secured) could relate to the payment of money, the satisfaction of a debt or the wider performance of certain commitments. Letters of comfort are used where a party is unable or unwilling to provide a conventional guarantee or other form of collateral support (because, for example, the contingent liability would have to appear on the erstwhile guarantor’s balance sheet). There is no settled form for a letter of comfort. Typically it takes the appearance of a letter issued to a nominated recipient by a person (commonly, but not exclusively, a parent company of a subject company) wherein the issuer could make some or all of the following declarations to the recipient in respect of the subject company: (a) Awareness of obligations. That the issuer is aware of the obligations which the subject company has undertaken to the recipient under a particular contract. (b) Performance of obligations. That it is the policy of the issuer to ensure that the subject company is able to perform its obligations at all times (including the obligations under the particular contract). (c) Shareholding intentions. That the issuer intends to maintain its shareholding in the subject company as an affiliated party (at least for the duration of certain defined obligations) or will notify the recipient of a prospective change in the level of that shareholding. The essential issue to consider is the extent to which a letter of comfort casts the issuer in the role of a guarantor in favour of the recipient. This could be expressly disclaimed within the terms of the letter of comfort but, more commonly, this is left unsaid and will need to be addressed further. The extent of the commitment offered by the issuer of a letter of comfort will be critical where the recipient later seeks to enforce it against the issuer in the manner of enforcement of a conventional guarantee. Whether the letter of comfort can be so enforced will depend on whether it can be shown to have contractual force, creating an enforceable covenant against the issuer. A letter of comfort occupies a curious and often uncomfortable legal position. On the part of the issuer the letter is intended to offer a measure of well-intentioned support for a certain entity, contract, or arrangement, which could create some form of moral obligation but which is not ostensibly intended to go so far as to create a compellable obligation of guarantee (which, critically, is relevant if a guarantee may need to be disclosed as a contingent liability of the issuer) or other primary commitment by the issuer. Indeed, if the intention was to create such an obligation (as the issuer will claim) the letter of comfort would instead have been cast as a formal guarantee from the outset. In the hands of the recipient, however, the letter of comfort could be taken to mean something more than simply an expression of good intention. It should be beyond doubt that any express covenants of the issuer in the letter of comfort (for example to maintain a shareholding for a period of time or to notify changes of interest) are intended to create legally binding obligations which are enforceable against the issuer by the recipient. That could be as far as the liability of the issuer will go (with the extent of the issuer’s liability for breach to be assessed as a matter of quantum). To amplify those obligations into a full guarantee in respect of a particular entity, contract, or arrangement could take the letter of comfort beyond what was intended. (iv) Execution of a standby sales contract.

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Forms of Collateral Support, UKBC-GASLNGS 493298632 (2023)

At the time of execution of a sales contract a further contract for the sale of gas could be executed between the seller and a third party as the new buyer. This further contract, intended to be a standby sales contract, would be identical in form and content to the original sales contract, except for the following components: (a) The identity of the third party as the buyer. That third party could be a financial institution or a party which is affiliated to the original buyer (where, in each case, that third party would have at least equivalent or even superior creditworthiness to the buyer under the original sales contract). (b) The suspensory event. The standby sales contract would be executed and immediately suspended from operation through the inclusion of a condition precedent to its effectiveness relating to the termination of the original sales contract. (c) Redefinition of the contract quantity. The contract quantity (12-003) under the standby sales contract could be left blank, to be completed by the seller if and when the standby sales contract is activated. The contract quantity under the standby sales contract would be the contract quantity under the original sales contract minus the quantities of gas (if any) which the original buyer had taken delivery of and paid for under the original sales contract. In the event of the occurrence of a defined credit event under the original sales contract, which results in the termination of the original sales contract by the seller, the standby sales contract would then become activated between the original seller and the new buyer. This standby sales contract would constitute a replacement sales contract which applies the same commercial terms as the original sales contract to the remainder of the contract quantity to be purchased by the new (and more creditworthy) buyer. If there was not a defined credit event then this standby sales contract would not come into play. (v) Step-in rights. An alternative form of protection for a party is the possible existence of a step-in right, contained either in a sales contract or in a direct agreement (38-007). In theory at least, where a step-in right exists in favour of the seller in the sales contract then in the event of the buyer’s failure to make payment when due the seller could step in to the buyer’s position in order to operate the buyer’s business and to commandeer the revenues which would ordinarily be received by the buyer. By the same token a step-in right might in principle exist in a sales contract in favour of the buyer where the seller fails to perform its obligations. To structure an effective step-in right would require agreement and documentation beforehand between the seller, the buyer, any relevant third parties and any relevant regulatory authority whose sanction may be required to allow such a step-in right to operate. In practice it might not be feasible for the seller to operate the buyer’s facilities (and vice versa) on the grounds of a lack of operational competence and/or no regulatory approval being forthcoming to allow the step-in right to function. Step-in rights are more usually found in projects whose development has been financed by third party lenders (5-013), where the lenders would seek to secure a temporary right of intervention in respect of their borrower’s business in the event of a default in repayment by the borrower. Even then however there could still be some difficulty for the lenders to secure the necessary regulatory approval so as to allow the full exercise of that right. A stepin right is perhaps more conceivable for a seller where the buyer is acting as an aggregator (6-010) since the seller could thereby assume the right and responsibility to deliver gas directly to the buyer’s end-users (6-010) and so take the benefit of their revenue stream. If, however, the aggregating buyer’s failure to pay the seller has been caused by the corresponding failure of the end-users to pay the buyer then the step-in right will in reality be of limited commercial value to the seller. (vi) Escrow arrangements. A buyer might be required to fund a defined bank account (to which the seller has access, and called variously an “escrow account”, a “locked box account” or a “cash pool”) with cash deposits to a defined level which the seller can then draw down in the event of a defined credit event affecting the buyer. This account could be funded by the buyer from the proceeds of on-sale of the gas or the resultant commodities, and this could be particularly appropriate where a buyer is acting as an aggregator.

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Forms of Collateral Support, UKBC-GASLNGS 493298632 (2023)

(vii) Advance payment amount. A buyer might be required to make payment in advance to the seller for a defined quantity of gas, against which the seller will then deliver that gas. 1 This process would be repeated during the lifetime of the sales contract (and the failure of the buyer to make the necessary payment would excuse the seller’s obligation to deliver the gas). (viii) Termination. The application of collateral support (in whatever form it takes) in respect of a sales contract is intended to allow the continued performance of the sales contract, despite the existence of financial difficulties which have inhibited the originally intended manner of performance. It may be that the sales contract reserves in favour of a party a right to terminate the sales contract where the other party to the sales contract has failed to make a payment when due or has otherwise breached the sales contract in relation to the provision of collateral support (15-002). Such a termination right could be regarded as a (drastic) form of collateral support, since it provides protection to the non-defaulting party in the event of the other party’s default through a removal of the obligation of the non-defaulting party to be obliged to continue with the sales contract This is not an entirely compelling proposition however, since termination of the sales contract could leave the terminating party with no contractual commitments in its favour if replacement provision cannot be made.

Footnotes 1

See P-12.

End of Document

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The Reality of Collateral Support, UKBC-GASLNGS 493298628 (2023)

The Reality of Collateral Support Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 15 - Collateral Support The Reality of Collateral Support 15-007 There could be a requirement that collateral support is put in place for the duration of a sales contract, or for the full economic value (to the party which is the beneficiary of the collateral support) of the sales contract. These are very different measures, where the first one relates to time and the second one to value. The seller might be able to produce gas reserves certificates which evidence the existence of the reserves of gas necessary to enable the seller to perform the sales contract but what realistically can the buyer do at the start of a sales contract to demonstrate to the complete and continuing satisfaction of the seller a financial capability which will be adequate to support all of the buyer’s prospective payment obligations for the lifetime of the sales contract? As an example of the magnitude of what is required, a GSA with a DCQ of 400 mmscf, with a 20-year term and a contract price fixed at $6/mscf, has a daily gas value of $2.4 million, an annual gas value of $876 million and a life-of-contract value of $17.52 billion. This will require some sizeable collateral support. In the context of LNG sales, the indicative value of LNG cargoes illustrates the magnitude of the issue. A parent company guarantee might be offered up in respect of a buyer but given the size of the figures involved any sensible seller would query whether this would be capable of enforcement for the full value of a sales contract (and particularly so if, looking forward, there is a termination payment due—39-007). An unlimited parent company guarantee given in respect of the buyer will only be as good as the financial ability of the buyer’s guarantor to meet any claims made by the seller for the enforcement of payment and beyond this the seller has no real comfort. A bank is unlikely to offer any kind of guarantee for the total gas value over the lifetime of the sales contract and at best might offer a guarantee commitment arrangement for a maximum value of the equivalent of say 12 or 24 months’ worth of gas sales proceeds, also with the benefit of a top-up provision (see above). A collateral support package made up of multiple components might be the only tenable proposition. In reality it is often impossible for a buyer to put in place a complete collateral support package in respect of its commitments under a long-term sales contract and consequently the seller might need to be prepared to adopt some risk of being unsupported through the buyer’s non-performance. A better protection for the parties is to ensure that the underlying gas commercialisation project is founded on a sound and durable economic premise which will, as far as is conceivably possible, ensure its continuing viability. End of Document

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Introduction, UKBC-GASLNGS 493298635 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay Introduction 16-001 This chapter addresses the provisions relating to structuring take and pay and take or pay commitments in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-026, although there will be some overlap between the two. This chapter considers the dimensions of, and the distinctions between, the take and pay commitment and the take or pay commitment. The element common to them both is that the buyer has a defined minimum gas offtake obligation which it must satisfy in order to avoid incurring a collateral payment obligation to the seller; the distinction between them relates to how that payment obligation is characterised. End of Document

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The Commercial Logic, UKBC-GASLNGS 493298641 (2023)

The Commercial Logic Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay The Commercial Logic 16-002 A high capital cost will be a consequence of creating the necessary infrastructure for a greenfield gas commercialisation project and gas producers have typically been reluctant to make a project investment without the comfort of a long-term gas purchase commitment from a creditworthy buyer to underpin their expenditure. In structuring a sale of gas a seller could be reluctant to rely on the merchant formulation of delivering and being paid for gas only when a buyer requests gas for delivery because of the risk that the buyer might not make such a request and the seller will not earn any revenue. The seller could overcome this risk by securing the buyer’s commitment to take and pay for a certain quantity of gas, or by securing a revenue stream from a buyer under a take or pay commitment. A buyer might object to a take and pay or a take or pay commitment on the grounds that if the buyer elects not to request gas for delivery then the seller is free to sell its gas elsewhere, but this suggestion fails to appreciate that the seller may have dedicated gas reserves to the buyer such that they cannot freely be sold elsewhere, that the seller may not have access to unutilised gas transportation capacity in order to facilitate a sale of gas to a third party or that there might not be sufficient liquidity in the market for gas to enable another buyer to be found, not least since there could be a less ready market for an alternative sale of gas in the same way that there is for (say) crude oil. Although the principal objective of the take and pay and the take or pay commitments is to generate a reliable revenue stream for the seller these commitments also have an ancillary purpose (which, at least from the seller’s perspective, could be no less important than the security of revenue outcome). The incentive to the buyer to take gas, unless the buyer is happy not to take gas but to make a corresponding payment, will be of importance to a seller of associated gas (1-004) in order to protect the production of the associated liquids and for effective reservoir management, and particularly so where the seller has no other means of evacuating the associated gas. This represents a security of offtake outcome for the seller, although its existence is often reflected less obviously in the terms of a GSA. End of Document

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1

Take and Pay, UKBC-GASLNGS 493298639 (2023)

Take and Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay Take and Pay 16-003 A take and pay commitment represents a gas sales formulation whereby the seller commits to sell and deliver gas to the buyer, and the buyer commits to take delivery of and to pay for gas, with each party’s obligations being firm. Under such a commitment the quantity of gas to be delivered, taken delivery of and paid for could be based on a defined quantity of gas or on the submission by the buyer of a nomination for a gas quantity, with a deemed nomination to apply if the buyer fails to give a nomination (18-005). A take and pay commitment is sometimes otherwise called a “must take” commitment If the buyer fails to take delivery of and to pay for the required quantity of gas (except where force majeure relief (35-001) or other permitted exceptions under the GSA might apply to relieve the buyer’s liability) then the buyer will be liable to make payment to the seller. The seller’s remedy will be the recovery from the buyer of a monetary amount based upon the difference between the quantity of gas which the buyer was obliged to take delivery of and to pay for and the quantity (if any) of gas which the buyer actually did take delivery of and pay for, multiplied by the contract price (13-001). This monetary payment is founded as a liability in damages for a breach of contract, payable by the buyer for the buyer’s failure to honour the gas offtake obligation under the GSA. This is quite different in character to the obligation in debt which is intended to be created by a take or pay commitment (see below). In mitigation of the liability which would otherwise be incurred by the buyer through paying the agreed amount of damages to the seller, the seller could undertake, usually through a reasonable endeavours obligation (41-020), to resell the gas which the buyer has not taken delivery of (if the seller is able to do so). The net proceeds of sale which are realised by the seller could then be applied as an offset to the damages which the buyer is obliged to pay the seller. This form of mitigation sale is consistent with the obligation of the parties to mitigate loss in relation to a damages claim under English law. If the proceeds of sale generate an overall profit for the seller, that is, the amount which is generated by the mitigation sale exceeds the amount of damages which are payable by the buyer, the excess amount usually stays with the seller. It is sometimes thought that a make up right for the buyer (17-002) has no place in a take and pay commitment (and also that the absence of a make up right is what distinguishes a take and pay commitment from a take or pay commitment) but this is not so. A GSA could, if it represents what the parties have negotiated between themselves, apply such a right where the buyer has failed to take gas (for any unrelieved purpose, whether votively or in circumstances where the buyer’s failure was not relieved by force majeure for any reason) and has made a corresponding payment to the seller, although a make up right in this situation could still be subject to defined limits on its application. The take and pay formulation gives little flexibility to the buyer to modulate its gas deliveries, at least where it does not also apply a make up provision, and for this reason might be less attractive to a buyer than a take or pay commitment but it is wellsuited for use in certain gas markets and in short-term and mid-term GSAs where the parties are agreeable to the commercial regime which it applies. A sale of associated gas (1-004) might be structured as a take and pay commitment so that the seller can better ensure the production of the associated liquids, and a seller might also require a take and pay commitment from a buyer to ensure a minimum throughput of gas from the seller’s gas production facilities for production or processing purposes. Because of the perceived value of a take and pay commitment to the seller, and because of its perceived relative disadvantage to the buyer compared to the flexibility of a take or pay commitment, a lower contract price might be payable under the GSA in consequence of the buyer’s acceptance of a take and pay obligation. End of Document

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1

Take or Pay, UKBC-GASLNGS 493298640 (2023)

Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay Take or Pay 16-004 The buyer may require the flexibility to take delivery or not to take delivery of gas as its operational needs dictate. In accommodation of this the seller could give the buyer an option on whether or not to take delivery of gas, on condition that the seller would still require the buyer to make payment to the seller of a certain value for the quantities of gas not delivered under the GSA. Such a payment is effectively an option fee which is payable for the buyer’s election not to take delivery of gas. This take or pay payment creates an obligation in debt in the seller’s favour. The distinction between this payment and the liability in damages which a take and pay formulation creates (see above) is based on the notion that under a take and pay commitment the buyer’s non-offtake of gas represents a breach of contract, whereas under a take or pay commitment the buyer’s non-offtake of gas represents the exercise of a contractual right to do so. From the seller’s perspective a take or pay commitment might be better suited to the production of non-associated gas, since there is a risk to the seller in combining a take or pay commitment with associated gas production that the buyer’s election not to take gas and to go on to take or pay could shut in the production of the associated liquids if the gas is not lifted and the gas cannot otherwise be dealt with (whether by storage, reinjection, flaring or sale to another person). Furthermore, the disposal of unlifted gas in order to facilitate the production of the associated liquids could reduce the seller’s ability to deliver gas in the future to satisfy the buyer’s make up rights or even to be able to deliver the contract quantity as an absolute measure of gas. A typical take or pay commitment in a GSA will operate and apply on an annual basis. The seller might seek a quarterly or a monthly take or pay commitment from a buyer in the interests of improving its cashflow and so giving a shorter timeframe for any exposure to a lack of creditworthiness on the buyer’s part. Where this is agreed to such a take or pay commitment will usually have a within-contract year reconciliation for overtakes and undertakes of gas against the frequency of the particular take or pay commitment, so that the buyer is not unduly prejudiced by giving up the flexibility which is inherent within an annual take or pay commitment in the acceptance of a more frequent commitment for the seller’s benefit. 16-005 The take and pay and the take or pay commitments are not mutually exclusive, and a GSA could recite both formulations. A GSA could, for example, define a baseload quantity of gas to which a take and pay regime would apply and thereafter up the ACQ in a contract year there might be a take or pay regime. Alternatively, both commitments could exist side-by-side in a GSA. A take or pay commitment (assuming that it is structured on an annualised basis) is made up of several components, each of which is considered below. (i) The annual take or pay quantity. As the starting point the buyer agrees to take and pay for, or to pay for if not taken, a specified minimum quantity of gas during each contract year. This minimum quantity is called the “annual take or pay quantity” (or ATOPQ), also called the “minimum bill quantity”. The ATOPQ for a contract year is derived as a percentage (which could be set at between 60 per cent and 100 per cent) of the (adjusted—see below) ACQ for that contract year. The ATOPQ will be subject to any upward or downward variations to the ACQ which the GSA makes provision for, and the ATOPQ will be pro-rated where the ACQ is pro-rated for a part contract year. An ATOPQ which is set at anything less than 100 per cent of the adjusted ACQ reflects a quantity tolerance for the buyer, since a decision of the buyer not to take delivery of and to pay for any quantity of gas which is within that tolerance will not give rise to a take or pay liability in favour of the seller. The seller’s

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Take or Pay, UKBC-GASLNGS 493298640 (2023)

interest is in securing the highest possible ATOPQ since this will determine the level of revenue which is guaranteed to the seller. The buyer’s interest is in securing the lowest possible ATOPQ since this will determine the minimum quantity of gas which the buyer is committed to pay for and will afford greater flexibility to the buyer in structuring supplemental gas purchase commitments from elsewhere. It may be that the ATOPQ varies during the basic term (e.g. the ATOPQ is expressed as a lower but increasing percentage of the ACQ during the early years of the GSA as the buyer’s market develops, and is expressed as a higher but decreasing percentage of the ACQ towards the end of the basic term as the buyer brings on alternative supplies of gas). That said, the seller could be unwilling to afford any such flexibility to the buyer in the purchase of gas and might instead require a flat profile for the ATOPQ over the lifetime of the GSA. It may also be that the ATOPQ could reduce during the basic term as the seller recovers the capital costs of its gas production and transportation infrastructure, although paradoxically this could accelerate the right of the seller to terminate the GSA because it has become uneconomic to perform (39-005) if the buyer’s purchase obligation is thereby lessened. It would be possible in theory for the seller to set the ATOPQ at a level which is so high that the seller could struggle to meet the gas delivery commitment which that ATOPQ implies, in the hope that the buyer will not require that quantity of gas but would also make a take or pay payment which is set at a high level. Whilst this is not an obviously prudent course for the seller to take, a not unduly onerous remedy for a seller’s delivery failure under the GSA (19-002) might make it feasible to do so. Whether commissioning gas (23-006) or excess gas (12-014) which is taken by the buyer counts towards satisfaction of the ATOPQ will depend on what is negotiated between the parties in the GSA. Overtake gas which is taken by the buyer (18-013) will usually not apply towards satisfaction of the ATOPQ. (ii) Adjustments. The precise extent of the buyer’s take or pay commitment will be determined after a series of deductions (or adjustments) which (without double counting) reflect certain circumstances in which gas was not delivered by the seller or was not taken delivery of by the buyer during the contract year, and which possibly also reflects carry forward gas which was delivered in the preceding contract year in excess of the applicable ATOPQ. These adjustments are applied to the ACQ to give the adjusted ACQ (or AACQ). The GSA should provide that adjustments to the ACQ can never take the ACQ below zero. Adjustments will continue to accrue during the contract year; where they accrue towards the end of the contract year they will (except in the case of carry forward) typically be applied to that contract year through the annual reconciliation exercise in the next contract year, rather than be carried forward to the next contract year. Adjustments which reduce the ACQ will reduce the ATOPQ and so will reduce the guaranteed revenue stream which the take or pay commitment affords to the seller. For this reason the seller will wish to minimise the extent of the adjustments. The usual adjustments to the ACQ are as follows: (a) Non-delivered gas. There will be an adjustment for gas which the seller has failed to deliver which falls within the definition of a seller’s delivery failure (19-002) which will also include off-specification gas which the buyer has exercised its right to reject which is treated as a seller’s delivery failure (19-002). This adjustment will also cover gas which is not delivered or not taken delivery of during scheduled maintenance which is exercised by either party (24-002) and during any period of permissible interruption (11-014). (b) Force majeure relief. There will be an adjustment for gas which the seller was unable to deliver or which the buyer was unable to take delivery of for reasons of force majeure (35-001) affecting either of them. Where the buyer is acting as an aggregator and has secured force majeure relief in respect of its end-users (6-010) this adjustment could also extend to gas which the end-users are unable to take delivery of for reasons of force majeure affecting them. (c) Carry forward. There will be an adjustment for carry forward accruals from the preceding contract year, where the GSA contains a carry forward provision (17-010).

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Take or Pay, UKBC-GASLNGS 493298640 (2023)

In drafting the take or pay formulation the ATOPQ could be expressed to be a percentage of the ACQ, without accounting for the adjustments. This formulation has the advantage to the buyer that because the full extent of the adjustments, and therefore the extent of the adjusted ACQ and the extent of the buyer’s ATOPQ commitment, will not be fully known until the end of the contract year (which could pose problems where the buyer wishes to predict its offtake and only to take delivery of a quantity of gas equal to the ATOPQ) then the buyer should be better placed to schedule its planned offtake of gas during a contract year in order to meet exactly the ATOPQ where it is based on the unadjusted ACQ. A GSA will more typically, however, express the ATOPQ to be a percentage of the adjusted ACQ. Where this is so the buyer might still be more comfortable to plan its taking of delivery of gas by reference to the ACQ and to discount the adjustments, rather than to guess at what the adjustments are likely to be, although a monthly statement (20-003) will recite the adjustments to the ACQ on a monthly basis and so should give the buyer at least some basis to assess how the offtake of gas in satisfaction of the ATOPQ is progressing as the contract year progresses by reference to the adjusted ACQ. Where the ATOPQ does take adjustments into account then a further point which needs to be considered is whether the ATOPQ should be expressed (in simple terms) as “the adjusted ACQ x 90 per cent” or “the ACQ x 90 per cent minus the adjustments”. Despite the apparent similarity of these formulations a simple example illustrates the differing consequences to the parties:

(iii) The annual deficiency. Once the extent of the buyer’s take or pay commitment has been determined through the ATOPQ then the buyer’s performance against that commitment can be assessed. The annual deficiency determines the extent of the take or pay payment which will be due from the buyer to the seller in respect of a contract year and represents the difference between the buyer’s ATOPQ for the contract year and the quantity of gas (if any) which the buyer has actually taken in respect of that contract year. The seller will usually seek to calculate the annual deficiency as the difference between the buyer’s ATOPQ and the quantity of gas which has been delivered by the seller at the delivery point and which the buyer has actually taken delivery of and paid for (since this gives the buyer an additional incentive to make payment). Because a gas pipeline can effectively be used as a storage vessel, from the buyer’s perspective the annual deficiency would be better calculated by reference to the quantity of gas which has been delivered by the seller in response to the buyer’s nominations or requirements but without reference to the quantity of gas which the buyer has actually taken delivery of and paid for. The quantity of gas taken delivery of and paid for by the buyer could be less than the quantity of gas delivered by the seller, depending also on the length of the invoicing cycle (20-002); determining the quantity of gas which the buyer has not taken delivery of and paid for as part of the annual deficiency is akin to imposing an undertake provision (18-010) on the buyer since, in order to reduce the annual deficiency, the buyer is thereby incentivised to take delivery of and pay for the gas which the seller has delivered at the delivery point. If the buyer’s payment obligation in the GSA is usually based upon the quantity of gas which was nominated by the buyer and delivered by the seller, rather than the quantity of gas which the buyer has actually taken delivery of, then the buyer could effectively pay twice for the same quantity of gas— once when that gas is delivered by the seller in response to a buyer’s nomination and again if the buyer makes a take or pay payment in respect of an annual deficiency which includes any gas quantity not taken delivery of by the buyer through the delivery point. To prevent this double counting the GSA could be worded such that the annual deficiency is determined as the difference between the buyer’s ATOPQ and the quantity of gas nominated for delivery by the buyer, delivered by

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Take or Pay, UKBC-GASLNGS 493298640 (2023)

the seller and paid for by the buyer, without further reference to whether the buyer actually took delivery of that gas. If the buyer is obliged to pay for gas which it has nominated and which the seller has delivered then the seller recovers at that point in respect of the gas delivered and should not need to recover again in respect of gas nominated and delivered but not taken delivery of as part of the annual deficiency. Alternatively, if the annual deficiency is determined by reference to the quantity of gas delivered to and taken delivery of by the buyer then in the calculation of the annual take or pay payment credit could be given for gas which the buyer has already paid for as a nominated quantity but has not taken delivery of, to prevent such double counting. That said, the conventional formulation in a GSA is that which favours the seller and this is reinforced by the wording of the basic take or pay premise which imports the obligation of the buyer to pay for gas even if it is not taken delivery of. This gives the buyer a real incentive to take delivery of the gas which it has nominated or requested for delivery, which benefits the seller. (iv) The take or pay payment. If in respect of a contract year there is an annual deficiency then the buyer will be obliged to pay to the seller a take or pay payment, based on the quantity of gas represented by the annual deficiency multiplied by the average applicable contract price (13-001) for that contract year. Consequently it will be apparent that the contract price also plays a critical role in determining the extent of the buyer’s take or pay liability. Where the buyer is unable to take delivery of gas for reasons not excused by force majeure then the buyer will be unable to secure an adjustment to the ACQ based on force majeure and so will be exposed to make a take or pay payment. In this situation the buyer might require the seller to seek alternative sales options for the buyer’s gas, in a manner similar to the exercise of such an option by the seller in the case of force majeure affecting the buyer, with the resultant revenues to accrue at least in part to the buyer as a mitigant to the buyer’s take or pay exposure or even for such alternative gas sales to count towards satisfaction of the buyer’s take or pay commitment. The seller might be unwilling to undertake such additional obligations, or at least would not offer any such commitment beyond the exercise of its reasonable endeavours. Because a take or pay commitment gives the buyer a liability in debt rather than in damages (see above) the seller is not subject to an obligation to mitigate the buyer’s loss which might otherwise apply under English law and so the seller can less obviously be compelled to undertake such a mitigation sale in the buyer’s favour. To refer in the GSA to any mitigation sale which is agreed in these circumstances as being a form of damages mitigation is an incorrect formulation in the context of a true take or pay commitment. End of Document

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Effective Take or Pay, UKBC-GASLNGS 493298636 (2023)

Effective Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay Effective Take or Pay 16-006 The seller (and any third party lenders to the seller (5-013), to whom securing cash flow from the gas commercialisation project is vitally important) must be able to recognise the difference between the headline take or pay level which the GSA recites and the effective take or pay level which is achieved in practice under the GSA. Take the following example: A GSA has a DCQ of 400 mmscf/d, and so an ACQ of 146 bcf. The GSA has an ATOPQ of the adjusted ACQ x 90% (that is, 131.4 bcf, assuming no adjustments apply). In the GSA the buyer has reserved the right not to take gas at a rate of DCQ x 18.25 days (that is 7.3 bcf), ostensibly for the maintenance of the buyer’s facilities but deductible as a further adjustment to the ACQ whether or not the buyer carries out that maintenance. ACQ

146 bcf

Adjusted ACQ

131.4 bcf

Adjusted ACQ less 7.3 bcf allowance

124.1 bcf (= ACQ x 85%)

Despite the headline ATOPQ of adjusted ACQ x 90%, the effective ATOPQ is adjusted ACQ x 85%.

Where such adjustments to the ACQ are agreed as part of the negotiation of the commercial terms of the GSA then a seller could structure the take or pay commitment on the basis of the headline take or pay level as a high percentage of the ACQ but with effective reductions to the ATOPQ buried within the body of the GSA, rather than as a lower (but more realistic) take or pay level at the outset. This is done in the interests of maintaining the precedent of an objectively higher nameplate take or pay commitment, and could be helpful in avoiding the potential for the application of any most favoured nation provisions (13-014). End of Document

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The Adequacy of Take and Pay and Take or Pay, UKBC-GASLNGS 493298637 (2023)

The Adequacy of Take and Pay and Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay The Adequacy of Take and Pay and Take or Pay 16-007 A particular issue for the seller to consider is whether a take and pay or a take or pay commitment will, despite the monetary payments flowing to the seller which they each represent, be adequate to compensate the seller for all the economic consequences which are suffered by the seller because of the buyer’s election not to take delivery of gas. This should be so where the underlying take and pay or take or pay calculation reflects only the value of the undelivered gas but where a take and pay or a take or pay commitment is used to protect the production of associated liquids (1-004) then the seller could be exposed to an inadequate recovery of the displaced value which results from non-production. For example, a barrel of crude oil which sells for $60 contains an energy equivalent value of $10.32 per million British thermal units (mmBtus) at parity (13-013). If the production of this crude oil is shut in through the buyer’s non-lifting of associated gas then a contract price to gas of anything less than $10.32 per mmBtus which becomes payable through a take and pay or a take or pay payment would not compensate the seller for the full value of the loss of revenue from the suspended sale of the associated liquids. Aside from the take and pay or take or pay payment which is determined as a product of the contract price payable under the GSA, the GSA might also provide for an even greater liability of the buyer, expressed as a liquidated damage, which would then entail a consideration of the distinction between liquidated damages and penalties (36-009) in order to ensure its efficacy, to compensate the seller where associated liquids production or the operation of the seller’s facilities is jeopardised by the buyer’s failure to take delivery of the required quantity of gas. A GSA could even go on to provide that a failure of the buyer to take delivery of a minimum quantity of gas over a particular period of time could amount to a breach of the GSA which would entitle the seller to treat that failure as a termination event (39-005), although this could be seen as an extreme remedy which is not necessary if the seller is adequately financially compensated for its exposure by the buyer. End of Document

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Restricting and Promoting Take or Pay, UKBC-GASLNGS 493298642 (2023)

Restricting and Promoting Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay Restricting and Promoting Take or Pay 16-008 Although the buyer’s take or pay commitment represents a committed revenue stream to the seller, the seller’s preference is usually to have the buyer taking and paying for gas frequently, rather than not taking gas and deferring the flow of revenue until the time when a take or pay payment becomes due. An annualised take and pay or take or pay obligation will give cash flow management and creditworthiness concerns to the seller, although the seller’s concerns in this regard should abate where the GSA obliges the buyer to make its take or pay payments more frequently than annually (see above). Additionally, there could be unacceptable levels of volatility in revenue to the seller, which might be unwelcome to the seller or to any third party lenders (5-013) to the seller, where the buyer goes onto take or pay in a contract year and subsequently recovers that take or pay payment through make up in subsequent contract years, rather than where the buyer takes and pays for gas at a steady rate. This is illustrated by the following example:

Although the eventual revenues accruing to the seller over the entire 24 month period are the same, the monthly revenue profiles are very different:

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Restricting and Promoting Take or Pay, UKBC-GASLNGS 493298642 (2023)

It is also the case that under certain accounting conventions a seller may be unable to fully book the revenues from a gas sale without there first being an actual matching delivery of gas in order to ensure that the substance of the transaction is properly reported. This principle causes no problem where the buyer is taking and paying for gas frequently, or makes a take and pay payment for a gas offtake failure, which could be expressed also to discharge the seller’s gas delivery obligations, but where the buyer goes onto take or pay and makes a payment the seller might be unable to book this revenue through its profit and loss account until it has delivered a corresponding amount of gas through the make up provision (if such a provision exists in the GSA). This deferment of revenues could give a distorted and unwelcome view of the seller’s business. 16-009 In light of these concerns the seller could seek to discourage the buyer from going onto take or pay, principally by imposing certain commercial limitations upon the recoverability of make up by the buyer (if make up is even allowed to exist under the GSA) by a variety of devices. These devices are considered at 17-007. Consistent also with the seller’s desire to see the buyer taking gas and paying for it on a regular basis, rather than going onto take or pay, the GSA might provide that if the buyer contracts to buy gas from another seller (which the buyer might do if lower gas prices or other more attractive terms are available from that other seller) then the buyer’s annual take or pay commitment under the existing GSA will be re-defined as a take and pay commitment or will increase, for example by raising the ATOPQ from ACQ x 90 per cent to ACQ x 100 per cent. This mechanism (sometimes called an “infidelity provision”) is effectively penalising the buyer for its desire to buy further volumes of gas from someone other than the seller. The seller could regard this form of provision as defensible in the protection of its anticipated delivery of gas by giving the buyer a real incentive to take gas under the GSA. The buyer, on the other hand, may argue that such a provision unfairly restricts the freedom of the buyer to maintain flexibility by contracting to buy gas from several sources and ignores the value of the take or pay commitment which the seller already has from the buyer. Such a provision would also need to be considered in light of any competition law provisions to which the GSA may be subject (Ch.7). End of Document

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Take or Pay and Penalties, UKBC-GASLNGS 493298634 (2023)

Take or Pay and Penalties Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay Take or Pay and Penalties 16-010 Because a take and pay commitment explicitly creates a liquidated damages liability in favour of the seller (see above) then the exposure of such a provision as a potentially unenforceable penalty makes for a relatively easy analysis, based on the distinction under English law between liquidated damages and penalties (36-009). The position is more opaque in relation to take or pay. Any discussion about the legal efficacy of take or pay would be incomplete without addressing the popular dialogue about whether the take or pay mechanism in some way constitutes a penalty, and could be unenforceable as such. The suggestion that a take or pay commitment somehow constitutes a penalty could be attractive to a buyer under a GSA which contains such a commitment which has resulted in that buyer being locked into an obligation to buy gas at a contract price which is greater than the price at which gas could be bought elsewhere in the market, although the English courts have previously ruled that the prohibition on penalties should not be used as a tool simply to afford relief to a contracting party against an onerous bargain. 1 The starting point for consideration of the issue of take or pay as a penalty is a recognition of the fundamental principle that a take or pay payment is not intended to be payable as a penal consequence of a failure of the buyer to take delivery of a quantity of gas. Rather, says the conventional wisdom, the take or pay commitment represents an alternative method of contractual performance for the buyer, which has the option to take delivery of gas and to pay for it or not to take delivery of gas but still to pay. 2 Not taking delivery of gas is not a breach by a buyer of the terms of the GSA but creates a payment obligation founded in debt and not damages. For this reason the GSA should avoid wording which suggests that a take or pay payment is the limit of the buyer’s liability for a failure to take delivery of gas. If this logic prevails then the very first limb of the test for a penalty (that is, that it is a sum payable on the occurrence of a breach of contract) is not fulfilled. 16-011

There have been two previous decisions of the English courts which caused some concern as to whether the rule on penalties had been extended also to debt claims. In E-Nik Ltd v Department for Communities 3 the court found, in the context of an alleged take or pay clause, that the rule on penalties could also apply to a debt claim provided that the event that would give rise to a debt claim also amounted to a breach of duty (or where the debt claim arose in parallel to a breach of contractual duty). The court’s earlier reasoning in M& J Polymers Ltd v Imerys 4 appears to suggest that if a sum is due as a debt arising out of a specified event that is also a breach of duty then the rule on penalties applies. These decisions opened the door to the suggestion that a take or pay commitment, with the debt obligation which it created, could be at risk of being construed as a penalty. Despite these decisions, a number of earlier decisions of the English courts had set out what was (and still is) widely accepted to be the correct approach to analysing a take or pay commitment—that the revenue stream created by such a commitment is a primary obligation which is founded in debt which follows on from the performance of a specified obligation of a seller to make gas available, and does not create a primary or even a secondary obligation to pay damages for breach of contract. It follows from this therefore that the law on penalties should not apply. 5 The current thinking on what constitutes a penalty under English law is represented in Cavendish Square Holding BV v Makdessi 6 discussed further at 36-009. Decisions of a court which suggest anything other than the most recent logic summarised above might be incorrect but even the notion of their possibility should give rise to concern when read against a poorly drafted take or pay clause. The risk is that

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Take or Pay and Penalties, UKBC-GASLNGS 493298634 (2023)

such drafting will be impugned before the courts by a party keen to evade its obligations. For this reason, the drafter of a take or pay clause must be careful to get it right. Despite adherence to the principle that a take or pay payment is not made because of failure of the buyer to take delivery of gas, it would be prudent of the seller when negotiating a take or pay commitment to ensure that the object or effect of the drafting does as little as possible to expose that commitment to a risk of being challenged as a penalty in any other way.

Footnotes 1 2 3 4 5 6

Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 W.L.R. 399; [1983] 2 All E.R. 205 HL. See, e.g., Coneco Ltd v Foxboro Great Britain Ltd Unreported 24 February 1992 CA (Civ Div) which phrased a take or pay obligation as a contingent obligation to pay a defined amount independent of an alleged breach of contract. E-Nik Ltd v Department for Communities [2012] EWHC 3027 (Comm). M& J Polymers Ltd v Imerys Minerals Ltd [2008] EWHC 344 (Comm); [2008] 1 All E.R. (Comm) 893. White & Carter (Councils) Ltd v McGregor [1962] A.C. 413; [1962] 2 W.L.R. 17 HL; Associated British Ports v Ferryways [2008] EWHC 1265 (Comm); [2008] 2 Lloyd’s Rep. 353. Cavendish Square Holdings BV v Makdessi [2015] UKSC 67.

End of Document

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The Future of Take and Pay and Take or Pay, UKBC-GASLNGS 493298633 (2023)

The Future of Take and Pay and Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay The Future of Take and Pay and Take or Pay 16-012 At the macroeconomic level, the security of a revenue stream which a take and pay or a take or pay commitment creates in favour of a seller could be critical in facilitating the development of new gas production and transportation infrastructure and the existence of such a commitment has proved to be an essential tool in the successful evolution of infant gas markets. Such a commitment within a GSA could be essential in securing protection for a seller of gas against demand risk, effectively by locking a buyer into a defined bargain which is bounded by objective measures of quantity, contract price and duration, and it gives a seller the security of income and the incentive to undertake a project to commercialise gas. Any third party lenders to the seller (5-013) will share this interest. Because a take and pay or a take or pay commitment will be of particular relevance during the start of a gas commercialisation project’s life, when the infrastructure has yet to be built, several issues could follow on from this: (i) Amortised infrastructure. The buyer could argue against the continuing need for the commitment where the relevant gas production and/or transportation infrastructure has already been developed and paid for, as part of an argument whereby the buyer offers a price payable for gas which only reflects the underlying commodity cost. (ii) Non-specific infrastructure. Even if there is no particular infrastructure which requires to be developed as part of a gas commercialisation project the seller could still argue in favour of the need for the commitment in a GSA because it requires a guaranteed revenue stream for the seller’s other, non-specific project developments. (iii) End-of-life infrastructure. Where the seller contracts to sell gas using production (and possibly transportation) infrastructure which is approaching the end of its operational life then a purchase commitment from the buyer which is underpinned by the commitment could be helpful in meeting the costs of decommissioning those facilities. The combination of a long-term GSA with a take and pay or a take or pay commitment and a contract price which is static relative to the cost of competing gas or other fuels can, however, result in a contractual formulation which could be open to challenge by the buyer. Such a challenge could come where the underlying economics and the regulatory foundations of a wider energy market have evolved such that the buyer’s commitment becomes commercially untenable in light of comparatively better opportunities to buy and sell gas. 16-013 From a buyer’s perspective such a GSA could sit uncomfortably within the context of a developing energy market, where sufficient gas sale and purchase liquidity and available gas transportation capacity emerges to facilitate true gas-to-gas competition on price and other terms. In such a market the commercial temptation for sellers and buyers could be to resort to short-term sale and purchase commitments, and this may well be a perfectly adequate form of arrangement for such a market. Increased levels of market

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The Future of Take and Pay and Take or Pay, UKBC-GASLNGS 493298633 (2023)

flexibility could lead to the ability of a seller to mitigate the demand risk through constructing a portfolio of different supply opportunities, which in turn could reduce the need for a take and pay or take or pay commitment from a buyer. The difficulty lies, however, in accommodating the transition from long-term to short-term GSAs as energy markets evolve and regulating the situation where those long-term commitments, once so essential to the development of a market, have become grotesque and unbearable. Consequently there may need to be a basis to revisit the economic regime which a long-term GSA creates in order to ensure the continuing viability of such a contract. The drafting of a typical force majeure provision (35-001) will rarely excuse the buyer’s obligation to perform a take and pay or a take or pay commitment where market conditions have altered such that it is no longer economic for the buyer to perform its commitments and there is usually a specific exclusion from the availability of force majeure relief in respect of changes in market economics. The risk to the buyer of maintaining the GSA in light of uneconomic market evolution might better be addressed by inserting a hardship provision (14-004) or form of material adverse change provision (35-018), which would at least offer some mitigation of the contract price which underpins a take and pay or a take or pay commitment. Ultimately the buyer might even resort to an unexcused refusal to perform its obligations under the GSA, leaving the seller with little option but to bring an action for breach of contract. The difficulties to the seller, however, with making a claim for an accelerated receipt of its prospective revenues or of calling in any collateral support given in respect of the buyer’s obligations might leave the seller with little practical option but to salvage the best deal it can from a renegotiation of the GSA. 16-014 This situation was graphically demonstrated in practice in the US gas market in the late 1980s and early 1990s. The combination of an excess of supply of gas versus demand, the effects of gas market deregulation and the introduction of competition and downward pressure on gas prices together conspired to expose pipeline company gas buyers, who were acting effectively as middlemen in the purchase of gas from gas producers (on a take or pay basis) and the resale of that gas to local distribution companies, to the obligation to honour their high take or pay commitments when demand from their buyers was fast falling away because their buyers were able to contract to buy gas from elsewhere. Some of these pipeline companies were economically crippled by the situation which they found themselves in, and in some cases threatened to refuse to honour their gas purchase commitments, accompanied by demands to renegotiate those commitments. On occasion those commitments became the subject of litigation as the affected pipeline companies sought a way out. In the US most gas producers eventually came to recognise the reality that holding a take or pay commitment from a virtually bankrupt counterparty was a worthless proposition and renegotiation of the underlying gas sales arrangements ensued. As part of this process significant take or pay receivables were surrendered, often requiring the consent of third party lenders to those gas producers who had financed the construction of their gas production and transportation infrastructure in expectation of the revenue stream which the take or pay commitment was intended to secure. The risks faced in the US gas markets were repeated in the UK in the latter half of the 1990s in consequence of the deregulation of the UK gas industry and a similar situation could be faced elsewhere as the drive towards the full liberalisation of gas markets gathers momentum. End of Document

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The Convergence of Take and Pay and Take or Pay, UKBC-GASLNGS 493298638 (2023)

The Convergence of Take and Pay and Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 16 - Take and Pay, Take or Pay The Convergence of Take and Pay and Take or Pay 16-015 The notion that the take or pay commitment creates an alternative, elective method of contractual performance by the buyer could be seen as a relatively elaborate fiction, made necessary principally in order to mitigate the risk to the seller that the guaranteed revenue stream which the mechanism creates might be undermined by exposure to the English law of penalties (see above). However, the recent change of emphasis in English law regarding how an effective liquidated damage can be created has opened the door to the possibility of doing things differently in a GSA. A GSA could reflect the possibility of a hybrid take and pay or take or pay arrangement, ignorant of any particular nomenclature and taking a form which indicates a degree of convergence between the discrete commitments as they are described above. A GSA could, for example, create an arrangement whereby the buyer commits to buy certain volumes of gas in respect of certain periods of time from the seller, with a liability of the buyer to pay defined (and, in the GSA, commercially justified) liquidated damages to the seller as an immediate reaction to a failure to do so, and including the situation where that failure could be the result of a conscious decision by the buyer, so giving the buyer the option to take and pay or simply to pay. The arrangement could also create some form of a make up right for the buyer, to allow a reconciliation of the payments which the buyer has made to the seller with the quantity of gas which the buyer failed to take delivery of, if this is commercially acceptable. The descriptive issue of whether this sort of arrangement would properly constitute a take and pay or a take or pay commitment will be of much less importance than the substantive, operational efficiency of the arrangement, however it is described in the GSA. Such an arrangement would be intended to guarantee the flow of revenue to the seller, and to allow the buyer to predict the economic consequences of its failure and possibly even to make them good, in each case in a manner which is legally enforceable. Such an arrangement might also be paired up in a GSA with a deliver or pay right for the seller (19-006), and even an operating account which is the subject of ongoing netting (20-008) between the parties which records and offsets their respective payment liabilities, in the interests of greater flexibility. End of Document

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Introduction, UKBC-GASLNGS 534049314 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 17 - Make Up and Carry Forward Introduction 17-001 This chapter addresses the provisions relating to make up and carry forward mechanisms in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-032, although there will be some overlap between the two. Make up and carry forward mechanisms can be valuable tools in enabling a buyer to modulate its gas offtakes under a GSA in light of often unpredictable operational and/or commercial requirements, but they are not always represented in a GSA. These mechanisms, and the parameters within which they operate, will be matters for negotiation between the parties. End of Document

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Make Up, UKBC-GASLNGS 534049309 (2023)

Make Up Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 17 - Make Up and Carry Forward Make Up 17-002 Make up provisions are considered here principally in respect of a take or pay commitment (16-004), but a make up provision might also be structured to apply in respect of take and pay commitment (16-003). It is possible that over the course of a contract year (assuming that to be the applicable take or pay period) the buyer could take delivery of less gas than the required minimum quantity, being the quantity of gas which is represented by the take and pay or the take or pay commitment to which the buyer is subject for that period, and would make a corresponding payment to the seller. The buyer could require a mechanism which reconciles the payment it made for the gas it did not receive. A GSA could cater for this possibility through a make up mechanism. It might be perceived by the buyer as unfair that when the buyer has made a take or pay payment in respect of an annual deficiency the seller receives payment from the buyer and the seller is also able to retain the gas which it was otherwise prepared to deliver to the buyer. To mitigate this the parties could agree that when the buyer has made such a payment it will be credited towards a notional make up account, which allows the buyer to later recover an equivalent quantity of gas in order to reconcile the position. Make up gas in this context is sometimes referred to as “bank gas”. An annually-based make up provision typically provides that when the buyer has made a take or pay payment in a contract year, in the next contract year the buyer could, after the buyer has taken delivery of and has paid for a quantity of gas equal to minimum quantity for that contract year, take a quantity of gas equivalent to the quantity of gas represented by the make up account, up to a defined limit (often the ACQ) for that next contract year. The quantity of gas so taken is described as make up and any amounts of make up so taken will reduce the accrued balance in the buyer’s make up account. The term “make up” is often used interchangeably to describe the amount of make up gas which resides in a make up account pending recovery by the buyer, the act of recovery of that gas by the buyer and the quantity of gas which has been so recovered by the buyer. 17-003 The recovery of make up by a buyer assumes some degree of predictability in the flow of gas under a GSA. Make up recovery might be more difficult where gas flows are less predictable (e.g. in relation to a seller’s nomination regime which applies to the production of associated gas (1-004)). If a take or pay payment represents a prepayment by the buyer for gas which is the subject of a deferred lifting, then make up represents the buyer’s subsequent recovery of that prepaid amount of gas. Make up is often classified as free gas to the buyer but this is not entirely correct. Where the buyer is recovering make up the buyer will give nominations for gas in the usual manner and this gas will thereafter be invoiced for at a price of zero, or at the contract price but with a credit for the amount already paid by the buyer as the take or pay payment, which will equate to zero where the contract price has remained constant. There could also be a split of the revenues flowing from the buyer to the seller in consequence of a make up recovery. Rather than having a formulation for payment by the buyer of 100 per cent of the value of the gas not taken delivery of under the take or pay commitment, matched by a subsequent make up recovery at a zero price, a GSA could recite a formulation whereby (say) 70 per cent of the value of the gas not taken delivery of is paid for up front by the buyer and the remaining 30 per cent of the price is payable by the buyer when the make up is recovered. This has the advantage of improving the buyer’s cash flows (but not the seller’s cash flows), and could offer a partial mitigation to the problem of changed prices between the take or pay

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Make Up, UKBC-GASLNGS 534049309 (2023)

and the make up phases (see below), but could also place the seller at risk of not recovering the further 30 per cent of the price if there is not a subsequent make up recovery by the buyer. A seller could be exposed through the recovery of make up by the buyer during a period of rising gas prices. If the buyer has made a take or pay payment and later seeks to recover make up at a time when the contract price has risen, then the seller will arguably be missing an opportunity to earn greater revenue on the gas which is subsequently being delivered as make up at a zero price. The seller may therefore require in a GSA that the buyer, when it exercises its rights to recover make up, reimburses to the seller the difference between the value of the gas within the amount paid by the buyer as a take or pay payment and the (greater) value of the make up at the time of its recovery. Correspondingly, the buyer could seek a reciprocal measure of protection from the seller where the contract price has moved the other way but the seller may reject this as a risk which the buyer should have taken into account when making its election not to take delivery of gas. 17-004 In respect of the relationship between make up and other gas quantities the following should be noted: (i) Make up and shortfall, overtake and undertake gas. The liability of the seller for a shortfall in the delivery of gas which is being taken by the buyer as make up is considered elsewhere (19-012), as is the interface between the recovery of make up and the buyer’s undertake or overtake. (ii) Make up and excess gas. During a contract year when the buyer is recovering make up there may be occasions when the buyer also requests the delivery of excess gas (12-014). A GSA should resolve the apparent conflict between make up being delivered at a zero price and excess gas which, if delivered, could usually be at a premium to the contract price. The buyer might argue that since gas is being delivered as make up (and at a zero price) any quantity of excess gas which is delivered during that period should also be at a zero price. The seller might argue however that the buyer should still pay some form of premium element for such excess gas, notwithstanding that the baseline price is zero (based, for example, on the notional price which would otherwise have applied). (iii) Suspension of gas deliveries for non-payment. If the seller has the right to suspend the continuing delivery of gas as a reaction to the buyer’s failure to pay an invoice when due then that suspension right would ostensibly also apply to the seller’s delivery of make up. If the buyer’s right to recover make up in a contract year is triggered by the buyer having taken delivery and paid for a quantity of gas equal to minimum quantity for that contract year, then a payment failure by the buyer in respect of any other gas quantity under the GSA could also disapply the continuing make up recovery. The buyer’s accrued make up entitlements will usually be recoverable in the order in which they were incurred, such that when a make up recovery phase arises the first make up entitlements to arise (first in) will be the first to be redeemed (first out), in accordance with the so-called “FIFO” principle. Such an order of redemption is also consistent with the operation of any rolling mortality provision (see below). The buyer is usually expressed to have a right to recover its accrued make up entitlements but the GSA might also express this as an obligation of the buyer (to be discharged wherever possible in respect of a contract year). The seller could prefer this where the GSA specifies remedies to the buyer for the recovery of unredeemed make up (see below) which the seller might regard as less attractive than allowing make up to be recovered. Despite occasional views to the contrary, it is not axiomatic that the existence of a make up provision in a GSA will have the potential to cure a potentially penal take or pay commitment, but there is an inescapable relationship between the two mechanisms. The seller could contend that because the buyer’s make up recovery rights will operate to reimburse to the buyer the value of the take or pay payment through the subsequent delivery of gas, which supports the notion of a take of pay payment as a pre-payment for gas which is capable of being later delivered by the seller (although this notion is not at the heart of the election which the take or pay concept offers), then an allegation that a take or pay commitment is inherently penal in nature is thereby diminished. A make up provision could do much to overcome that allegation by realigning the parties’ economic interests. Following this logic, the perceived fairness of a take or pay commitment which has no, or which has severely restricted, make up recovery rights, whether during the lifetime of the GSA or upon termination, could be jeopardised, and a similar risk

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Make Up, UKBC-GASLNGS 534049309 (2023)

might be imposed by any take or pay infidelity provision (16-009) since such a provision could have the effect of raising the make up gate (see below) to an unworkable level and thereby rendering the make up provision largely inoperable in practice. End of Document

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Unrecovered Make Up, UKBC-GASLNGS 534049310 (2023)

Unrecovered Make Up Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 17 - Make Up and Carry Forward Unrecovered Make Up 17-005 There will usually be some debate between the buyer and the seller as to what happens in relation to any accrued make up entitlements which are unrecovered by the buyer when the GSA ends. The options are as follows: (i) Loss of entitlement. The buyer loses those entitlements completely (which may be defensible by the seller where other attempts (see below) have been made in the GSA to enable the buyer to recover its accrued make up entitlements prior to the end of the GSA). (ii) Extension of the GSA. The duration of the GSA is extended for a defined period beyond the end of the basic term, for a defined make up extension period, to enable the buyer to recover those entitlements. The overlap between an extension to the GSA in these circumstances and the extension of the GSA to enable the buyer to recover any undischarged shortfall price discount needs to be considered. (iii) Cash-out. The seller pays to the buyer a monetary sum (called a “cash-out”) in respect of those entitlements, calculated typically by reference to the aggregate amount of the take or pay payment originally made by the buyer which remains unredeemed. (iv) Gas-out. The seller delivers to the buyer equivalent quantities of gas or other hydrocarbon products (called a “gas-out”) in compensation for the unrecovered make up entitlements. There may be limits in a GSA to the circumstances in which the buyer can exercise any of the rights suggested above, based on the principle that where the GSA has ended because of the buyer’s default then the buyer should forfeit the entitlements under points (ii), (iii) and (iv) and where the GSA has ended because of an inability on the part of the seller to produce or deliver gas then point (ii) could be unworkable. A GSA could also prescribe, in respect of a cash-out and a gas-out, that the remedies are limited in application only to those entitlements which the buyer has tried to take delivery of but which were undelivered for reasons of force majeure (35-001) or because of the seller’s failure to deliver. The ability of the parties to agree a make up extension period could be limited by the necessity to secure corresponding extensions to any necessary gas transportation arrangements and also (in the seller’s case) to the upstream concession for gas production. The seller’s willingness to agree to a make up extension period could also be conditioned by the seller’s reluctance to be liable to incur the operational costs of running the gas production (and possibly transportation) infrastructure during that period. The seller has little incentive to run its business at cost, and no incentive to do so for anything less than that, where the overall gas project economics could be diluted by factoring in the impact of such an extension period. Consequently, if there is to be such an extension period then the seller could require the reimbursement by the buyer of its defined operational costs and even also a defined percentage uplift on those costs. 17-006

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Unrecovered Make Up, UKBC-GASLNGS 534049310 (2023)

Where the seller is faced with the choice of extending the duration of the GSA to allow gas to be delivered as make up or paying a cash-out or a gas-out, the seller’s preference could be for an extension period, on the basis that this should allow quantities of gas to be delivered in satisfaction of the buyer’s entitlements which if left unrecovered might otherwise not be commercially recoverable by the seller. The buyer’s preference, however, may be for a cash-out rather than an extension period. The buyer may be concerned that the recovery of its accrued make-up entitlements through a cash-out exposes the buyer to the risk of the lack of creditworthiness of the seller. As a counter to this exposure the buyer might wish to structure the GSA such that for a period ahead of the scheduled expiry date of the basic term (10-002) a discounted contract price will apply, and against that accruing discount the buyer’s accrued make-up entitlements will be offset. Such a sinking fund will only be capable of application, however, where the GSA runs for its full term and is not the subject of an event which causes its earlier termination (39-005). End of Document

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Make Up Recovery Limitations, UKBC-GASLNGS 534049311 (2023)

Make Up Recovery Limitations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 17 - Make Up and Carry Forward Make Up Recovery Limitations 17-007 A seller will usually wish to restrict a buyer’s freedom to rely on a take or pay commitment and thereafter to recover make up, despite the relative economic insulation which those commitments give to the seller. A cycle of gas production founded on this principle could lead to the seller experiencing undesirable fluctuations in revenue flows and difficulties in economic and operational forecasting. An attractive regime for take or pay and make up to the buyer could also undermine the security of offtake rationale for having a take or pay commitment. It is customary therefore to find provision in make up clauses that the buyer must exercise the recovery of its make up entitlements within a defined time from their accrual, and usually in the order in which those entitlements have accrued (see above), otherwise they will be lost, rather than to have accrued make up rights existing in perpetuity during the remainder of the GSA. Under this rolling mortality provision the buyer will seek to extend the period for making its make up recoveries for as long as possible and will wish to be protected against losing make up entitlements where the buyer has been unable to take delivery of make up quantities because of an event of force majeure or the seller’s default (including a shortfall by the seller). In the absence of a rolling mortality provision the buyer’s make up rights are sometimes described as being “evergreen”. 17-008 The ability of the buyer to recover its accrued make up entitlements could also be limited by two further factors: (i) Physical limitations. The seller may be unable to deliver all of the buyer’s accrued make up entitlements in a single contract year because of physical (or commercial) capacity constraints affecting the seller’s gas production (and transportation) infrastructure (and, in reality, similar constraints could affect the buyer’s own facilities), or because of obligations to deliver gas to other buyers. For this reason the seller could insert in the GSA a provision which limits the recoverability by the buyer of its make up entitlements on an annual basis to a defined percentage of a finite measure (such as the ACQ). Care needs to be taken by the buyer, however, to ensure that this limitation is structured fairly. The ACQ represents the maximum quantity of gas which the seller is obliged to deliver in any contract year, and the seller should have reserved gas production and deliverability capacity up to that limit. The buyer could expect that a cap on the recovery of make up in a contract year should be set at the ACQ, such that the recoverable quantity of make up in a contract year is the amount represented by the difference between the minimum quantity and the ACQ. A demand by the seller in negotiating the GSA that a limitation is imposed upon the recoverability of make up which is anything less than this differential amount will arguably not be defensible on technical or operational grounds, since the seller should have the intention of delivering gas up to the full amount of the ACQ. (ii) Contractual limitations. Make up is usually only recoverable by the buyer in a contract year when the buyer has in that contract year taken delivery of a quantity of gas equal to the minimum quantity (which will therefore be a pre-agreed threshold, sometimes called the “make up gate”). In practical terms the recoverability of make up by the buyer is determined by a combination of two factors:

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Make Up Recovery Limitations, UKBC-GASLNGS 534049311 (2023)

(a)the height of the make up gate: the higher the make up gate then the lower the likelihood (even to the point of impossibility) that the buyer will get to exercise its make up rights in the intended contract year of make up recovery; and (b)the extent to which in the intended contract year of recovery the buyer can accelerate the rate at which it can take delivery of gas (sometimes called the “offtake rate”) in order to get to the make up gate quicker and thereafter recover its accrued make up entitlements. 17-009 A buyer will seek to secure the lowest possible make up gate and the highest possible offtake rate in order to maximise the opportunity to recover make up. “Make up days” is a term sometimes used to describe the number of days which are available to the buyer to engage in the recovery of make up in any contract year. From the inter-relationship of the make up gate and the offtake rate the resultant number of make up days will ensue as evidenced by the following example: A GSA has an ACQ of 146 bcf, a DCQ of 400 mmscf/d, an MDCQ of 440 mmscf/d has a minimum quantity of ACQ x 90 % (that is, 131.4 bcf). Available make up days will be determined by the height of the make up gate and the buyer’s gas offtake rate (assuming 365-day contract years): Gas offtake rate (mmscf/ day)

Make up gate

Days taken to reach make up gate

Make up days available per contract year

440

ACQ

331.8

33.2

400

ACQ

365

0

360

ACQ

405.6

[40.6]

440

ATOPQ

298.6

66.4

400

ATOPQ

328.5

36.5

360

ATOPQ

365

0

A high make up gate could be established as a component within a GSA at the outset but the same effect could also be achieved in practice where the buyer faces falling levels of demand in the downstream gas market. Where the buyer has reduced demand for gas then the buyer is less likely in a contract year to take delivery of the minimum quantity and correspondingly will be less likely to be able to recover make up. To enable the buyer to recover its accrued make up entitlements towards the end of the scheduled lifetime of a GSA, in preference to accepting an obligation to be liable for a cash-out or a gas-out, the seller might wish to structure the GSA so that towards the end of the basic term there could be a combination of an increase in the rate of delivery of gas and a reduction of the minimum quantity, so that the make up gate is lowered and the offtake rate is increased with the intention that the ability of the buyer to recover its make up entitlements is enhanced. The buyer’s make up right could particularly be expressed as an obligation of the buyer in these circumstances—where the make up gate has been reached the buyer might be obliged thereafter to take gas in order to reduce the accrued make up entitlements, otherwise they will be lost. End of Document

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Carry Forward, UKBC-GASLNGS 534049312 (2023)

Carry Forward Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 17 - Make Up and Carry Forward Carry Forward 17-010 Where the buyer takes delivery of more gas than the minimum quantity in respect of a contract year, the buyer could require a mechanism which credits the buyer for the additional gas which it took delivery of. A GSA could cater for this possibility through a carry forward mechanism. The carry forward mechanism, which sometimes but not always appears in a GSA, operates thus: if in any contract year the buyer has taken delivery of and has paid for a quantity of gas in excess of the minimum quantity (where such excess amount of gas is called the “carry forward quantity”) then the buyer will receive a credit for that excess quantity of gas which will be carried forward to reduce the minimum quantity for the following contract year by way of an adjustment to the ACQ (19-002) or to the extent of a take and pay quantity. Therefore, in any contract year the buyer could increase the quantity of gas which it takes delivery of and could thereby reduce its minimum quantity commitment for the next contract year. Carry forward is a measure for determining the economic metrics of the buyer’s obligations under the GSA, but it does not create an additional right of the buyer to take more gas under the GSA, like excess gas (12-014) does. Carry forward could be represented by excess gas deliveries but should not be represented by overtake gas (18-013). The provisions of the GSA in respect of the seller’s delivery failure (19-002), undertake gas and overtake gas (18-010, 18-013) and off-specification gas (21-008) will apply equally in respect of any quantity of gas which would qualify as carry forward. Because of the requirement in defining carry forward gas that it must be gas which the buyer has also paid for make up gas when taken should not also qualify as carry forward. The buyer will regard a carry forward right as a valuable tool for gas offtake management and the seller should be encouraged that it evidences the desire of the buyer to take quantities of gas beyond the minimum quantity. The seller, however, could regard the carry forward right as an open door to revenue volatility over successive contract years since it could reduce the minimum quantity for the following contract year. For this reason the seller may wish to limit or even exclude completely the buyer’s access to carry forward. In theory at least, and ignoring the reality of the physical constraints upon the seller’s gas production (and any transportation) infrastructure, the buyer could, if it took delivery in a particular contract year of a quantity of gas equivalent to twice the minimum quantity, reduce the minimum quantity for the following contract year to zero, or could even cause the minimum quantity to go negative if the buyer took a quantity of gas of more than twice the minimum quantity. Although this would not automatically keep the minimum quantity at zero (or negative) thereafter, since the minimum quantity should be reset annually from the ACQ, this could give the seller the prospect of zero revenue in the contract year when the minimum quantity is at zero. To overcome this possibility it is usual for a carry forward provision in a GSA to state that the potential accrual of carry forward in each contract year will be limited to a defined percentage of the minimum quantity. End of Document

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Make Up and Carry Forward Together, UKBC-GASLNGS 534049313 (2023)

Make Up and Carry Forward Together Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 17 - Make Up and Carry Forward Make Up and Carry Forward Together 17-011

There is an inevitable overlap between the accrual of carry forward and the recovery of accrued make up entitlements in the same contract year, since both quantities represent a demand by the buyer for a quantity of gas in a contract year which is in excess of the minimum quantity for that contract year. To address this overlap the GSA should provide that where the buyer is in a position to recover accrued make up entitlements in a contract year then the quantity of gas taken delivery of by the buyer in excess of the minimum quantity in that contract year will not be capable of classification simultaneously as carry forward. Any quantities of gas taken delivery of by the buyer in a contract year which are in excess of the minimum quantity would be applied firstly towards reduction of the accrued make up bank, and only then would such quantities of gas be classifiable as carry forward. End of Document

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Introduction, UKBC-GASLNGS 493298649 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Introduction 18-001 The provisions which are discussed in this chapter relating to nominations, undertake and overtake relate solely to the sale of pipeline gas under a GSA. In order to meet the buyer’s operational needs during the lifetime of a GSA it will be necessary for the seller to know how much gas the buyer wants delivered at the delivery point and in respect of which periods the buyer wants that gas to be delivered. To effect this the GSA (or a separate operations manual) will contain a nominations regime, by which (usually) the buyer will nominate to the seller its requirements for the delivery of gas, and by which any variation in those requirements which might subsequently be required by the buyer can be notified to the seller. This regime will also reflect the key operational characteristics of the pipeline through which the gas is being transported. Where the buyer can exercise flow control or can control gas pressure at the delivery point then it may be that the buyer could take delivery of less or more than the quantity of gas which has been delivered by the seller at the delivery point in response to the buyer’s nomination. The possibilities of undertake and overtake in such a circumstance, and the consequences of such actions, should be addressed in the GSA. End of Document

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Nominations, UKBC-GASLNGS 493298655 (2023)

Nominations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Nominations 18-002 The GSA could require the submission of nominations for the delivery of gas by the seller to the buyer, which could be made by reference to calorific values or to units of volume, depending upon how the GSA expresses gas quantities. 1 The freedom of the parties to negotiate the nominations regime to suit the requirements of their GSA could be limited where the gas is to be transported to the delivery point through a multi-shipper pipeline (25-020) since the pipeline operating regime which is set out in the pipeline system rules (25-023) will typically import a prescribed set of nominations parameters by which the parties to the gas transportation arrangements will have to abide operationally. These parameters will flow through to the GSA as a minimum level of operational conditions between the seller and the buyer, 2 and any change to the pipeline system rules could require further amendment to the corresponding provisions in the GSA. Under a conventional buyer’s nomination regime the buyer will give the seller a nomination for the quantity of gas which the buyer wishes to have delivered at the delivery point in respect of a given nomination period. The buyer’s nomination is the pivotal point for determining whether the seller has delivered gas and the application of the seller’s delivery failure (19-002), excess gas (12-014) and undertake gas and overtake gas (see below) regimes. The buyer should ensure that the nominations timetable in the GSA fits with its requirements for gas and with any downstream commitments to which it is subject. In this regard the buyer will try to engineer as much flexibility as it can in the nominations regime, so that the buyer can order gas for delivery which best meets the buyer’s gas demand patterns. The seller should ensure that the nominations timetable is sufficient to give the seller adequate time to produce gas and to schedule the required gas deliveries, and that it fits with the scheduling requirements of the pipeline or other facilities which the seller may be using to produce and/or to transport gas to the delivery point. The buyer could also be obliged to make a compulsory nomination for a minimum quantity of gas, in order to protect the seller’s production of associated liquids (1-004) or the operational integrity of the seller’s facilities. 18-003 As common as it is, a buyer’s nomination regime is not found in every GSA. It could be that the seller will declare the availability of gas to the buyer and the buyer will then be obliged to take delivery of that gas whenever it is available. This seller’s nomination regime is less typical but is applied, for example, to the production of associated gas, where the prime motivation of the seller is the production of the associated liquids and any associated gas will be made available to the buyer when the associated liquids production so dictates. This principle could be acceptable to a buyer with a portfolio of gas purchase opportunities. It is sometimes also the case with the development of an associated gas field that the seller will be able to set a wide gas production pattern against anticipated associated liquids production, and that within that gas production pattern a conventional buyer’s nomination regime can then be accommodated, in a combined seller’s declaration/buyer’s nomination model. 3 Seller’s nominations can also be made in a system trade-based GSA. 4 Alternatively, a GSA could be set up so that a buyer is free to take whatever quantities of gas it requires to take, typically limited in relation to a day only by the DCQ (12-010) applicable to that day, without provision for prior nomination and thus giving the buyer a wide measure of freedom in determining the gas offtake pattern and the seller a corresponding obligation to maintain the corresponding deliverability (11-012). The benefit of such an arrangement to the buyer could be reflected in the contract price (13-001).

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Nominations, UKBC-GASLNGS 493298655 (2023)

Under a buyer’s nomination regime nominations will be given by the buyer at least once in respect of each day, where a day will be defined as a period of 24 hours, starting and ending according to whatever timescale has been agreed between the parties. The buyer could require a frequency of nomination greater than daily where its gas delivery requirements call for greater flexibility and so, for example, a 24-hour period could be split up into a series of equal and separate nomination periods, in respect of which the buyer will give a series of nominations. Typically the buyer will identify its daily peak load requirements and will try to ensure that the definition of a day, and the sequencing of the nomination periods within that day, is such that the nomination periods do not straddle the identified peak load periods. The period of time in respect of which a nomination is given by the buyer is the nomination period and the fundamental delivery obligation of the seller could be to deliver to the buyer the nominated quantity of gas in respect of that nomination period. 18-004 A GSA will typically specify the required timing for the submission of nominations by the buyer and the method of communication for the submission of nominations to the seller (which could be governed by the notices provision in the GSA (41-019)) and the GSA might also set out a pro-forma notice for the submission of a nomination submission. In order to give greater scheduling certainty to the seller the GSA could additionally provide for supplemental nominations to be given by the buyer in respect of longer periods of time, such as each week and/or each month within a contract year. Assuming a single daily nomination applies, in gas quantity terms the buyer’s aggregate permissible nomination in respect of a day will be in a range of zero to the maximum daily contract quantity (12-012), unless a minimum-level nomination is required operationally by the seller (e.g. where the seller’s gas production (and any transportation) facilities cannot accommodate very low level nominations), in which case the buyer could give a nomination in the range of the minimum-level nomination up to the MDCQ, or the buyer could give (or could be deemed to have given) a zero nomination if it cannot submit a nomination equal to or greater than the minimum-level nomination:

This establishes what is sometimes called the “nomination range”. The minimum-level nomination is better expressed as a percentage of the DCQ than as an absolute quantity of gas, so that it keeps pace with any modifications of the DCQ during the lifetime of the GSA. A GSA might impose a cap on the extent to which nominations can be set on an ongoing basis (e.g. each nomination could be limited to a variance of not more than a certain percentage of the preceding nomination), so that the seller is not exposed to the setting of a nomination pattern by the buyer which is characterised by wild fluctuations which a seller might be unable to satisfy. 18-005

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Nominations, UKBC-GASLNGS 493298655 (2023)

Where a party is undertaking scheduled maintenance (24-002) and has given a notification of a reduced ability to deliver gas (from the seller) or of a reduced requirement for gas (from the buyer) then the upper limit on the quantity of gas which the buyer can nominate for delivery should be set at the level of the gas quantity reduction set out in such notifications. The buyer could be required, but cannot be compelled, to give a nomination. The GSA could provide that (unless the GSA prescribes a defined daily gas offtake schedule which effectively takes the place of an ongoing nomination provision) a deemed nomination (determined, for example, by an extrapolation of a corresponding previous nomination or by reference to the averaging of a number of previous nominations) will be entered if the buyer fails to give a nomination when required. This is necessary in a GSA which recites a take and pay or a take or pay commitment (16-003, 16-004) since it establishes the extent to which the buyer has elected not to take delivery of gas and so could be obliged to make payment to the seller. A deemed nomination will also be of assistance to the seller in maintaining the consistent operation of its gas production (and any transportation) facilities and will ensure an even flow of revenue to the seller where the invoicing and payment regime under the GSA (20-002) obliges the buyer to pay for gas which it has nominated (whether actually or by deemed nomination) and which the seller has sought to deliver against that nomination.

Footnotes 1 2 3 4

In NBP 2015 (6-002) a daily trade nomination is made in kilowatt hours; in the AIEN GSA (6-002) a nomination is made in units of volume if the parties so select. See e.g. NBP 2015, where trade nominations have the meaning specified in the Uniform Network Code. See P-13. See e.g. NBP 2015 (6-002), where trade nominations are made by both the seller and the buyer.

End of Document

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Good Faith Nominations, UKBC-GASLNGS 493298651 (2023)

Good Faith Nominations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Good Faith Nominations 18-006 During a period when the seller is unable to deliver gas to the buyer, which could be treated as a seller’s delivery failure (19-002) or which could be a circumstance in respect of which force majeure relief (35-001) will be claimed by the seller, the buyer should continue to give its nominations in the ordinary manner. This is acceptable since such nominations will define the extent of the seller’s delivery failure and so the buyer’s remedy, and the extent of the ACQ adjustment for gas not delivered for reasons of force majeure affecting the seller where the GSA applies a take or pay formulation or the relief which is to be afforded to the buyer where a take and pay formulation applies. To prevent an abuse of this principle by the buyer, however, the nomination provisions in the GSA could import what is often called a “good faith” (or “honourable”) nominations regime. Because the test for a seller’s delivery failure or the extent of an ACQ adjustment or the buyer’s relief will be based on the extent of the failure of the seller to deliver a nominated quantity of gas, there is a risk to the seller that when it experiences a restriction in its ability to deliver gas and notifies the buyer of that restriction the immediate reaction of the buyer will be to vary the existing nomination upwards (see below) and to give all subsequent nominations to the greatest possible level. This would maximise the extent of the seller’s delivery failure and so the extent of the remedy recoverable by the buyer from the seller, or would maximise the extent of the ACQ adjustment or the buyer’s relief. 18-007 Although the buyer might regard this as a legitimate commercial opportunity, the seller might regard such behaviour as taking unfair advantage of a problem which the seller has in good conscience notified to the buyer. The GSA might therefore provide, in favour of the seller, that where the seller has notified the buyer that the seller is or will be experiencing a restriction in its ability to deliver gas to the buyer then the buyer cannot increase the level of its future nominations beyond the level of the nomination which was in force at the time the seller notified the buyer of its restricted ability to deliver gas, and cannot request an upward variation to its existing nominations. This limitation would apply until such time as the seller notifies the buyer of the remediation of its restricted ability to deliver gas. Alternatively, the level beyond which the buyer is not permitted to increase future (or to vary existing) nominations could be set at an average of the buyer’s nominations over a given previous period in order to avoid the distortion which could otherwise be caused if the buyer had an unusually low or high nomination in force at the time of the seller’s notification of its restricted ability to deliver gas. The level beyond which the buyer is not permitted to increase future (or vary existing) nominations should not be set, however, at the level of the quantity of gas which the seller says it is able to deliver (if any) in consequence of its restricted ability to deliver gas, since this would unfairly inhibit the buyer’s remedy for a seller’s delivery failure or the ACQ adjustment or other relief for the buyer, all of which should continue to be determined by reference to the quantity of gas which the buyer continues to nominate versus whatever quantity of gas the seller is able to deliver. The intention of the good faith nominations regime is to protect the seller from an exaggerated exposure to a liability for a seller’s delivery failure or an ACQ adjustment or other relief, but not to reduce or altogether exclude that liability to the buyer’s detriment. End of Document

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Variations, UKBC-GASLNGS 493298652 (2023)

Variations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Variations 18-008 It may be that the buyer wishes to subsequently vary a nomination (upwards or downwards) once it has been made in order to respond to short-term variations in the demand for gas to which the buyer is subject. When drafting a nominations regime in a GSA there could also be a provision for the variation of nominations. The buyer will seek to secure the widest possible rights to vary a nomination after it has been given but before the related quantity of gas has been delivered, in the interests of securing the greatest possible measure of operational flexibility and to be able to match its downstream demands. The seller will correspondingly seek to impose limits upon the subsequent variability of a nomination, to fit with any technical limitations on the seller’s ability to meet a variation and in order to protect itself against the risk of shortfall following an upward variation, because a nomination which has been validly varied will become the nomination in force and so will be the benchmark for the measure of the seller’s subsequent performance in the delivery of gas. The flexibility which is available to the buyer in giving and in varying its nominations will be constrained by the physical limitations of the seller’s gas production (and transportation) facilities. It may be that only a zero or a minimum-level nomination (see above) can be entertained where the buyer is giving a downward variation and there could be limitations on the amount of linepack (28-008) in the pipeline upstream of the delivery point and/or on the seller’s ability to ramp up gas production which could condition the seller’s ability to accommodate the buyer’s requirement for an upward variation. The level of flexibility which the buyer can secure for the upward variation of nominations will also in practical terms determine the likelihood of whether the buyer will ever need to take delivery of a quantity of excess gas (12-014). A greater level of flexibility in the upward variability of nominations could reduce the prospect of the buyer’s having to rely on excess gas, which could represent a lost commercial opportunity for the seller, at least where excess gas has a premium price associated with it. This often gives the seller an incentive (in addition to any technical constraints to which the seller may be subject) to impose limits upon the subsequent variability of nominations by the buyer. The seller might also be asked to accommodate a request by the buyer for a variation to a nomination (whether that is the original nomination or one which has already been varied) outside of the agreed variation limits in the GSA and the seller could even be under a reasonable endeavours obligation (41-020) to accept a request by the buyer to vary a nomination outside of those limits. Where this happens the increased quantity of gas which is represented by the varied nomination might be priced as a form of excess gas (where excess gas is priced as a premium to the contract price), or a subsequent quantity of gas equivalent to the decreased quantity of gas could be priced at the excess gas price, to give the seller an incentive to accept the request for the varied nomination. Alternatively the seller might reject the request for such a formulation and could insist instead that variations to nominations can only be made by the buyer within defined firm limits. End of Document

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Forecasts, UKBC-GASLNGS 493298656 (2023)

Forecasts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Forecasts 18-009 Apart from giving nominations the GSA might also require the buyer to give forecasts of its anticipated gas delivery requirements to the seller. These forecasts could be required in respect of annual, monthly, weekly or daily gas deliveries and will be helpful to the seller in scheduling the required operation of its gas production and transportation infrastructure and arrangements. By the same token, the seller might be required to provide forecasts of its anticipated gas production and/or delivery profile to the buyer, to help the buyer make its forecasts. The usual provision in a GSA is that a forecast (whichever way it is given) should represent the best estimate, made in good faith, of the party supplying the forecast, but that the forecast will not be binding on the party supplying the forecast, and that the party supplying the forecast will have no liability for any inaccuracy in it. End of Document

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Undertake Gas, UKBC-GASLNGS 493298650 (2023)

Undertake Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Undertake Gas 18-010 Notwithstanding the customary obligation of the buyer under the invoicing and payment regime in the GSA to pay for quantities of gas which the buyer has nominated and which the seller has delivered, regardless of the buyer’s actual offtake of that gas, the seller might say that the situation where the buyer nominates a quantity of gas and the seller delivers a quantity of gas at the delivery point in response to that nomination, but where the buyer elects not to take delivery of all of that delivered quantity of gas (where the resultant quantity of gas which is not taken delivery of by the buyer is called “undertake gas”), can cause problems for the seller: (i) Metering shortfall gas. Where the flow of gas is metered through measurement equipment upon delivery to the buyer at the delivery point (22-004) the seller could have difficulty in disproving an allegation by the buyer that the seller has failed to deliver the nominated quantity and so is in shortfall if the undertaken gas backs up at the delivery point and does not pass through the measurement equipment. The buyer might reply, however, that this situation can be taken care of without an express undertake provision by making it clear in the exceptions to shortfall provisions in the GSA (19-004) that the seller will not be liable for shortfall where an alleged quantity of shortfall gas has arisen because the buyer has elected not to take delivery of the gas which the seller has delivered (or has sought to deliver) at the delivery point. (ii) Inhibiting scheduled maintenance. Undertake gas will reside in the seller’s (or a third party’s) facilities at and upstream of the delivery point. This could reduce the opportunity to effect any scheduled maintenance programmes (24-002) in respect of a party’s facilities which might otherwise be able to be performed without such undertake gas being in residence. The buyer might reply, however, that the regime for maintenance of the seller’s facilities will be separately governed by specific maintenance provisions in the GSA and should be relatively unaffected by whatever quantity of gas the buyer chooses not to take delivery of (not least since the seller would be faced with the same problem in principle with its own linepack upstream of the delivery point). (iii) Reducing excess gas opportunities. By using the seller’s (or a third party’s) facilities to store undertake gas the buyer is using those facilities to maintain flexibility which it can call upon as its downstream needs dictate. This reduces the circumstances in which the buyer might otherwise have requested the delivery of excess gas, since the buyer could simply take delivery of some of the undertake gas which it has accumulated in those facilities when downstream demand for gas so requires. This reduction in the prospective need of the buyer to rely on excess gas could represent a lost commercial opportunity for the seller. The buyer might reply, however, that under a typical take or pay regime the buyer has the freedom to nominate gas as it wishes and the discretion to take delivery or not to take delivery of nominated and delivered gas, not least since the buyer will still be obliged to pay the seller for gas which the buyer has nominated and which the seller has delivered at the delivery point. The same principle will apply in a take and pay-based contract, where the buyer’s payment obligation will be absolute. Consequently the buyer might say that it should not be penalised for, and the seller should not profit additionally from, the buyer’s decision to undertake gas.

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Undertake Gas, UKBC-GASLNGS 493298650 (2023)

(iv) Transportation and production considerations. It may be that an undertake of gas by the buyer could expose the seller to liability to the transporter under the GTA or under any pipeline system rules for imbalance charges where the seller (as shipper) is obliged to take delivery of gas from the pipeline of gas which the transporter has transported to the delivery point. (v) Associated gas/liquids issues. Where the seller is producing associated liquids and is delivering dry gas and stripping liquids from the gas stream at the point of production for separate sale then the seller will be keen to ensure that the buyer takes delivery of the gas which the seller has delivered rather than leaves that gas in the seller’s (or a third party’s) facilities, since not taking delivery of gas could eventually cause the seller to shut in gas production and so to lose the opportunity to produce those associated liquids. The full value of these lost opportunities might not be recouped by the seller through the contract price or through the buyer’s payment obligation under a take and pay or a take or pay regime. The test for the buyer’s undertake assumes that the seller will have no difficulty in identifying a particular quantity of gas which the buyer has undertaken. This might be possible where the buyer has completely suspended its offtake of gas through the delivery point but where the buyer’s gas offtake pattern is erratic and intermittent then as a practical issue it could be difficult for the seller to actually prove whether a particular quantity of gas has been undertaken. End of Document

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Liability for Undertake Gas, UKBC-GASLNGS 493298654 (2023)

Liability for Undertake Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Liability for Undertake Gas 18-011

To discourage the buyer from undertaking gas the GSA might contain a mechanism whereby the seller is compensated by the buyer for the losses or liabilities (if any) incurred by the seller because of any quantity of gas which the buyer has elected to undertake. 5 The mechanism for such compensation might be based on the actual loss or liability suffered by the seller in consequence of the buyer’s undertake (which the seller would therefore have to prove first), or as an alternative to the open liability of the buyer to compensate the seller the GSA might provide that the seller will charge the buyer an additional premium to the contract price for any quantity of undertake gas. The buyer is still able to take delivery of any quantity of undertaken gas and will still be obliged to pay for it at the contract price, but with a premium attached. This premium is intended to act as a liquidated damage payable by the buyer in consequence of its undertake, with all that entails in order to validate a liquidated damages provision (36-009). The undertake gas premium will become payable automatically by the buyer in respect of any quantity of undertake gas. The buyer might, however, be unconvinced that the seller will actually incur any real loss or liability through the buyer’s undertake, and so, rather than submit to an undertake gas premium the buyer might prefer an obligation to compensate the seller for whatever proven loss or liability the seller has incurred in consequence of the buyer’s undertake.

18-012 In response to the seller’s request for an undertake gas provision the buyer might suggest that because the buyer’s liability to make a take and pay payment or a take or pay payment (16-003, 16-004) is determined by the quantity of gas which the buyer has not taken delivery of, then the liability of the buyer for gas nominated, delivered and undertaken will de facto be brought into existence and so an express undertake gas provision is not necessary in the GSA in order to further compensate the seller. The seller might reply, however, that whilst the seller has already been paid for gas nominated and delivered, regardless of actual offtake, the take and pay or the take or pay commitment would not offer a remedy for the wider mischief which an undertake represents (see above). Consequently, the seller would say that it requires a more meaningful regime to address the particular problem of the buyer nominating but then not taking delivery of gas, even if the buyer has paid for that gas. As a counter to the possible suggestion of the seller that the GSA should contain an annual cap on liability (36-008) which might include a cap on the seller’s liability for shortfall, the buyer might suggest an equivalent cap in the buyer’s favour in the GSA which could include a cap on the buyer’s liability for undertake gas. This would be of particular attraction to the buyer where the buyer accepts an open liability to compensate the seller for losses or liabilities caused by undertake gas. Such a cap could be objectionable in principle to the seller, however, because of the implication that the buyer can undertake gas without liability once the cap on liability has been reached. The seller could require that the test for undertake gas is absolute and is measured against any part of a delivered quantity of gas which the buyer does not take delivery of within a defined time. Alternatively, to mitigate the risk of an exposure to a liability for undertake gas the buyer might require an undertake gas tolerance and/or that the determination of undertake gas is aggregated over several nomination periods. These possibilities will require consideration of principles similar to those which apply in respect of the determination of shortfall liabilities. If it does apply within a GSA, the buyer’s liability for undertake gas could be disapplied in certain circumstances (e.g. where the buyer’s liability is relieved by force majeure, where undertake gas arose during the commissioning period or was caused by

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Liability for Undertake Gas, UKBC-GASLNGS 493298654 (2023)

the seller or where undertake gas arose because of the exercise by the buyer of a right to reject the prospective delivery of offspecification gas or where the buyer was entitled to exercise a suspension right). The seller might also require the GSA to give the seller a right of termination in respect of prolonged undertake by the buyer, in the same way as the buyer might have a right of termination for the seller’s prolonged failure to deliver gas (39-005), but the buyer might object to this because of the other remedies which the GSA already gives to the seller.

Footnotes 5

See P-14.

End of Document

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Overtake Gas, UKBC-GASLNGS 493298657 (2023)

Overtake Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Overtake Gas 18-013 Conversely to undertake gas, it may be that the buyer takes delivery of more than the nominated and delivered quantity of gas at the delivery point, where the resultant quantity of gas which the buyer takes delivery of in excess of that delivered quantity is called “overtake gas”. Overtake gas might be measured by reference to the nominated quantity for a particular nomination period (see above) or the quantity of gas otherwise delivered by the seller to meet the buyer’s requirements or by the buyer taking delivery of gas at a rate in excess of any maximum instantaneous rate (12-019). The ability of the buyer to overtake gas depends on the buyer having the physical ability to do so through the existence of flow control or pressure control at the delivery point (25-025). Overtake gas will be a particular problem to the seller where the seller is delivering gas to more than one buyer at the delivery point. The seller will wish to discourage the buyer from overtaking gas for several reasons, such as: (i) The validity of the nomination and delivery. An overtake of gas by the buyer, particularly where it is deliberate, ignores the sanctity of a nomination and a corresponding delivery. A pattern of overtake gas can make it difficult for the seller (or a third party) to operate its gas production and/ or gas transportation facilities to the optimal extent and with the confidence of other buyers utilising those facilities that their nominations will be met by the seller. (ii) The impact on other buyers. Where the seller is delivering gas to more than one buyer at the delivery point then an overtake of gas by the buyer could cause the seller to shortfall another buyer or could cause the seller to be in breach of an obligation in the GSA to allocate an aggregate shortfall rateably between those multiple buyers. (iii) The primacy of the shortfall remedy. Where the seller is likely to shortfall the buyer and advises the buyer of this risk then the buyer should not be permitted to make good the seller’s shortfall through overtaking gas, since the GSA will specifically prescribe a remedy for the seller’s shortfall. (iv) Reducing excess gas opportunities. The buyer might decide to overtake gas in preference to requesting the delivery of excess gas which is priced at a premium, which could represent a lost commercial opportunity for the seller. (v) Transportation considerations. It may be that an overtake of gas by the buyer could expose the seller to a liability to the transporter under the GTA or any pipeline system rules for imbalance charges where the seller (as shipper) is limited to taking delivery only of the quantity of gas which the transporter has transported to the delivery point.

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Overtake Gas, UKBC-GASLNGS 493298657 (2023)

Although the buyer could argue that it will still be obliged to pay the contract price for any quantity of overtake gas and so the seller will be thereby compensated, the above considerations should give the seller a reason to provide a meaningful disincentive in the GSA for the buyer to overtake gas where the buyer is able to do so. End of Document

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Liability for Overtake Gas, UKBC-GASLNGS 493298659 (2023)

Liability for Overtake Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Liability for Overtake Gas 18-014 The buyer’s liability for overtake gas might be based on an obligation to compensate the seller for its proven losses and liabilities which have arisen in consequence of the buyer’s overtake. 6 Alternatively the GSA might provide that where the buyer overtakes gas then the seller will charge the buyer a premium to the contract price for any quantity of overtake gas. The premium will represent a liquidated damage payable by the buyer and it should be set at a level which is greater than the excess gas price, otherwise it could be equally advantageous for the buyer to overtake gas or to request the delivery of excess gas, but without any of the operational conditions which the excess gas regime might otherwise apply under the GSA. In respect of the buyer’s liability for overtake gas the buyer might suggest (and the seller might object to) a cap on the buyer’s liability in the same manner as was considered in respect of undertake gas (see above). The seller could require that the test for overtake gas is absolute and is measured against any quantity of overtake gas. Alternatively, to mitigate the risk of an exposure to a liability for overtake gas, the buyer might require an overtake gas tolerance and/or that the determination of overtake gas is aggregated over several nomination periods. These possibilities will require a consideration of principles similar to those which apply in respect of the determination of shortfall liabilities. Any overtake gas tolerance could be unacceptable in principle to the seller, however, because it validates even the notion of an overtake by the buyer. 18-015 If it does apply within a GSA, the buyer’s liability for overtake gas could be disapplied in certain circumstances, e.g. where the liability is relieved by force majeure, where the overtake gas arose during the commissioning period or was caused by the seller. Any volume of overtake gas which is taken by the buyer should not count towards satisfaction of the buyer’s take and pay or take or pay commitment, since to do so would benefit the overtaking buyer, and neither should it be treated as carry forward (17-010), but it could count towards the seller’s delivery of the contract quantity (12-003). The seller might also require the GSA to give the seller a right of termination in respect of prolonged overtake in the same way as the buyer might have a right of termination for the seller’s prolonged failure to deliver gas. This is arguably more defensible, from the seller’s perspective, than having a termination right in respect of undertake gas (see above).

Footnotes 6

See P-15.

End of Document

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Undertake Gas, Overtake Gas and Other Prices and Quantities, UKBC-GASLNGS...

Undertake Gas, Overtake Gas and Other Prices and Quantities Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Undertake Gas, Overtake Gas and Other Prices and Quantities 18-016 The application of the principles of undertake gas and overtake gas should be considered in light of the potential for overlap with other gas quantities and gas pricing mechanisms in the GSA: (i) Undertake gas, overtake gas and excess gas. If the seller delivers a quantity of gas to which the excess gas price would apply and the buyer undertakes or overtakes against that quantity of gas then the seller will argue that the premium which is payable by the buyer for undertake gas or overtake gas (as appropriate) should be determined by reference to the excess gas price rather than by reference to the contract price, so as to maximise the disincentive to the buyer to undertake or to overtake gas. (ii) Undertake gas, overtake gas and make up. Where the seller is delivering gas which is being taken by the buyer as make up and the buyer undertakes or overtakes against that quantity of gas then there is an apparent contradiction between make up, which is being taken at a zero price, and the premium to the contract price which would otherwise be payable by the buyer for undertake gas or overtake gas. In this situation the difficulties which would be caused to the seller by an undertake or an overtake would still apply (whether or not the buyer is obliged to pay for the underlying quantity of gas) and so the buyer should still be obliged to pay a premium over a notional price which the undertake gas or overtake gas (as appropriate) provision requires but not the contract price itself, since the underlying quantity of gas is still being delivered at a zero price. Furthermore, any quantity of overtake gas might not be applied to the reduction of the accrued make up aggregate since to do so would give the buyer an additional incentive to overtake gas (although equally the seller might be content to see an accelerated reduction of the make up bank). (iii) Undertake gas, overtake gas and shortfall. If the seller shortfalls in the delivery of gas and the buyer undertakes or overtakes against whatever quantity of gas which was delivered, then the quantity of gas which was delivered will still be due to be paid for by the buyer at the contract price and the undertake gas premium or the overtake gas premium (as appropriate) should apply to that quantity of gas, with the shortfall remedy to apply separately. Where the seller has previously failed to deliver gas to the buyer and is subsequently delivering a quantity of gas to which the shortfall price discount would apply and the buyer undertakes or overtakes against that quantity of gas then the premium for undertake gas or overtake gas (as appropriate) should apply to that quantity of gas. The premium should be determined by reference to the contract price rather than the shortfall price discount, however, so as to maximise the disincentive to the buyer to undertake or to overtake gas. (iv) Undertake gas, overtake gas and off-specification gas. Where the off-specification gas regime in the GSA allows the buyer to elect to take delivery of an identified quantity of offspecification gas (21-008) any undertake or overtake by the buyer in respect of such a quantity of gas which the buyer has so elected to take delivery of should attract the customary application of the agreed undertake gas or overtake gas regimes. Where the GSA offers the buyer a discount to the contract price as an incentive to take delivery of off-specification gas

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Undertake Gas, Overtake Gas and Other Prices and Quantities, UKBC-GASLNGS...

then the premium for undertake gas or overtake gas (as appropriate) should be determined by reference to the contract price rather than by reference to the discounted price, so as to maximise the disincentive to the buyer to undertake or to overtake gas. Where the buyer has paid a premium in respect of an alleged quantity of undertake gas or overtake gas which has subsequently been proven not to undertake gas or overtake gas then the seller should be obliged to reimburse to the buyer the incorrectly paid premium (possibly also with interest). Where a quantity of gas has subsequently become classified as undertake gas or overtake gas then the relevant premium which should have applied originally to that quantity of gas should become payable by the buyer through the addition to the undertake gas aggregate or the overtake gas aggregate as appropriate (possibly also with interest). End of Document

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Undertake Gas, Overtake Gas and Wilful Misconduct, UKBC-GASLNGS 493298653...

Undertake Gas, Overtake Gas and Wilful Misconduct Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 18 - Nominations, Undertake and Overtake Undertake Gas, Overtake Gas and Wilful Misconduct 18-017 Because it is a liquidated damage, an undertake gas premium which is payable by the buyer under a GSA represents a limitation on the buyer’s liability to the seller for any loss or liability which is incurred by the seller because of the buyer’s undertake. A GSA could provide that any limitations of liability in favour of a party will not apply in respect of wilful misconduct by that party which gave rise to the liability (36-008). Wilful misconduct by the buyer in respect of undertake gas might be alleged by the seller on the grounds that a buyer’s undertake is contrary to whatever is defined in the GSA, or is understood, to be good and prudent pipeline operation practice. Alternatively wilful misconduct could be defined by reference to a disregard of the terms of the GSA, and the GSA could contain an express prohibition on undertake by the buyer. In any of these situations the buyer could be concerned that an undertake is claimed by the seller to be an act of wilful misconduct, which has the possibility of undermining the limitation of liability which the undertake gas premium is supposed to apply in favour of the buyer. The buyer will require the GSA to address this inconsistency. The overtake gas premium represents a similar sort of limitation on the buyer’s liability to the seller for loss or liability incurred by the seller because of the buyer’s overtake. Wilful misconduct by the buyer in respect of overtake gas could also be alleged by the seller on the grounds that the buyer’s overtake disregards any express provision of the GSA which prohibits the buyer’s overtake or that the overtake is contrary to good and prudent pipeline operation practice, and once again the buyer will require the GSA to address this inconsistency. Additionally, however, repeated overtake by the buyer could create a situation for the seller where the shortfall which is caused to other buyers from the seller could potentially entitle those other buyers to be in a position to exercise any rights of termination in their gas sales arrangements in consequence of the seller’s prolonged shortfall. The seller would be unlikely to be adequately compensated for this risk of loss of its other gas sales arrangements through the overtake gas premium payable by the overtaking buyer and in this circumstance the seller might require the remedy which would be afforded by an open liability of the buyer for wilful misconduct in consequence of repeated overtake by the buyer which adversely affects the seller’s interests under those other arrangements. Such a remedy in the seller’s favour would be subject to the seller’s proof of its losses, and would also have to be read in light of any disclaimer of liability for consequential losses which the GSA contains (36-008). End of Document

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Introduction, UKBC-GASLNGS 493298663 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Introduction 19-001 This chapter addresses the provisions relating to a seller’s failure to deliver gas in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-034, although there will be some overlap between the two. Any quantity of gas which the seller fails to deliver in response to a buyer’s nomination or other requirement will, unless the seller’s failure is excused by certain circumstances, be classified as a seller’s delivery failure—often also described as a shortfall. End of Document

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The Notion of Shortfall, UKBC-GASLNGS 493298666 (2023)

The Notion of Shortfall Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure The Notion of Shortfall 19-002 Shortfall could arise because of a failure of the seller to perform its obligations under the GSA or under a separate project development agreement (23-003) which in turn prevents the seller from performing its obligations under the GSA, or because of a failure of a transporter upon which the seller is relying for the delivery of gas under a GTA. However, the buyer will not wish to become involved in the forensics of how a particular shortfall has arisen. The buyer’s preference will be simply to treat any failure by the seller to deliver gas as a shortfall and so to place the onus on the seller to maintain a successful claim that one of the circumstances which excuses the seller’s liability for shortfall (see below) applies—failing which the seller could be obliged to compensate the buyer in some way for the shortfall. Where the seller has relied upon the assistance of third party lenders to finance the development of its gas production (and any transportation) facilities (5-013) the lenders to the seller will be keen to see a quantifiable limitation on the exposure of the seller to a liability for a shortfall, in order to protect the project cash flows and the overall gas commercialisation project itself (and ultimately to ensure the continued existence of the seller). The seller’s liability to the buyer for a failure to deliver gas to the buyer will often be capped in the GSA as a percentage (say 25 per cent) of the value of the undelivered gas (see below), to apply to a seller’s delivery failure or to a seller’s deliver or pay election (see below). On the other hand, the buyer’s liability to the seller for a failure to take delivery of gas will often be set in the GSA at 100 per cent of the value of the non-offtaken gas through the take and pay or the take or pay commitment (16-003, 16-004). This might appear to be an unfair disparity but several points can be made in its defence: (i)The seller will have made a significant level of investment in gas exploration activity and in the development of gas production infrastructure. The seller (and the seller’s third party lenders) will expect to recoup their investment from the sale of gas, and will have determined their project economics on the basis of full value payments by the buyer. This expectation will follow through to the circumstances where the buyer does not take delivery of gas where it otherwise could have done so. (ii)If the seller fails to deliver gas, the buyer could have more opportunity to make good the seller’s failure by buying replacement gas from elsewhere than the seller could have to deliver gas elsewhere if the buyer fails to take delivery. (iii)The buyer could have a right to recover the payments which it has made for a failure to take delivery of gas through a make up provision in the GSA (17-002). Ordinarily no equivalent provision applies in the seller’s favour to recover amounts which the seller has paid for its failure to deliver gas. Following the establishment of the ratio by which the buyer’s liability for failure is set at 100 per cent and the seller’s liability for failure is capped at 25 per cent (based on a percentage of the value of a defined quantity of gas) at 1:4, this ratio could follow through to other aspects of the GSA, including the quantum of the collateral support to be procured by the parties in respect of their respective obligations under the GSA (15-001) and the quantum of a termination payment which is agreed under the GSA (39-007). End of Document

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The Test for Shortfall, UKBC-GASLNGS 493298668 (2023)

The Test for Shortfall Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure The Test for Shortfall 19-003 To prove a shortfall by the seller it is necessary first to define the precise extent of the seller’s gas delivery obligation, and from that the parties will need to agree what degree of the failure of the seller to deliver gas to the buyer, measured against that delivery obligation, will constitute a shortfall. As a starting point, in a GSA the test for shortfall could be measured against the failure of the seller to deliver any part of a buyer’s properly nominated quantity (18-002), whether that nomination is in volumetric or calorific terms. The buyer could require this test to be absolute but to mitigate a strict exposure to a liability for shortfall the seller might seek some latitude in the GSA for its failure to deliver gas, such as the following: (i) The application of a shortfall tolerance. The GSA might provide for a shortfall tolerance (expressed typically as a percentage of the properly nominated quantity) to protect against de minimis delivery failures, where a failure of the seller to deliver gas which falls within the shortfall tolerance will not constitute shortfall. The shortfall tolerance could be applied according to each individual nomination but might also be applied on a monthly or an annual basis, with periodic reconciliations. Where the quantity of shortfall exceeds the shortfall tolerance the buyer’s remedy for shortfall (see below) could apply only to the portion of shortfall in excess of the shortfall tolerance or it could apply to the entire shortfall quantity, depending on what is negotiated in the GSA. Where a shortfall tolerance is agreed the buyer might seek to limit its application out of concern that the seller could rely on that shortfall tolerance as an excuse for persistently shortfalling the buyer by limited quantities but without incurring any liability for such individual shortfalls. On an annualised basis this limitation could come in the form of the shortfall tolerance being structured with an annual cap which will disapply the shortfall tolerance for the rest of the contract year once it has been reached. (ii) The application of aggregated nominations. The GSA might provide that shortfall is to be aggregated over a series of successive nominations in order to even out the risk of shortfall arising in respect of a single nomination. Where the test for shortfall is spread over a series of nominations and nomination periods within a single day there is a risk to the buyer that the seller might under-deliver gas for a particular nomination period, which could cause problems for the buyer, but the seller will be able to make up that under-delivery in the remainder of the day such that in respect of the whole day the obligation to deliver the aggregate of the nominated quantities is met and the seller has no net liability for shortfall. To protect the buyer in this situation the buyer might additionally require that shortfall is measured by reference to any drop in the rate of flow of gas beyond a certain threshold at any time, notwithstanding a satisfactory performance by the seller in the delivery of the overall quantity of gas during a day. End of Document

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Exceptions from Shortfall, UKBC-GASLNGS 493298669 (2023)

Exceptions from Shortfall Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Exceptions from Shortfall 19-004 The GSA will recite a list of circumstances where gas which the seller has not delivered to the buyer will not constitute shortfall and so no liability for shortfall will be assumed by the seller. This list of exceptions, which the seller will wish to make lengthy and which the buyer will not, could cover a number of events: (i) Gas which the buyer does not take delivery of. Gas which the buyer elects not to take delivery of which the seller has delivered at the delivery point is a customary exception from shortfall notwithstanding that it is arguably not necessary since the seller has not actually failed to deliver gas at the delivery point, depending on the definition of the act of delivery (11-007); rather, the buyer has elected not to take delivery of the delivered gas. (ii) Gas not delivered due to force majeure. Gas which is not delivered at the delivery point because of an event of force majeure (35-001) affecting the seller or the buyer is a customary shortfall exception, although any gas which is not delivered because of such force majeure will still afford a remedy to the buyer in the form of an adjustment to the ACQ in a take or pay commitment and could afford relief from liability in a take and pay commitment. (iii) Gas not delivered due to the buyer’s acts or omissions. An exception could apply for circumstances where the seller cannot deliver gas at the delivery point because of an act or omission of the buyer (which could include an act or omission under the GSA or under any separate project development agreement (23-003)) which prevents the delivery of that gas. This exception should also cover gas which the seller has not delivered which is within an increased nomination notified by the buyer once the seller has notified the buyer of its inability to deliver gas under a good faith nominations regime (18-006). (iv) Permissible non-delivery of gas. The non-delivery of gas which is permissible according to the terms of the GSA should give an exception. This could cover, for example, gas which is not delivered during scheduled maintenance downtime (24-002), gas which the seller is obliged to deliver only on a reasonable endeavours (41-020) basis, such as commissioning gas (23-006), gas not delivered where the seller is selling gas elsewhere within the allowances of the force majeure regime (35-013), gas which is not delivered where the seller is exercising a right of interruption (11-014) or gas which if delivered by the seller would cause the aggregate quantity of gas delivered in the contract year to exceed the ACQ or in the basic term to exceed the contract quantity (if the GSA sets such parameters). (v) Gas within a shortfall tolerance or otherwise excused. Gas which is not delivered but where such non-delivered gas falls within a shortfall tolerance (see above) could be an exception. Where the GSA recites a combined take and pay quantity and take or pay commitment the GSA could provide

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Exceptions from Shortfall, UKBC-GASLNGS 493298669 (2023)

that the seller’s liability for shortfall in respect of the take or pay commitment will not apply where the buyer has failed to meet its take and pay commitment first. (vi) Where an alternative basis for the seller’s liability applies. It may be that the seller’s failure to deliver gas of a required calorific value (1-007) could constitute shortfall and could simultaneously be an off-specification gas event (21-008). To prevent the double-counting of a liability against the seller, the seller’s liability for shortfall could be excluded where the buyer is able to secure a separate remedy for the off-specification gas event in the GSA (or vice versa). In negotiating the exceptions from shortfall the seller might also suggest that where the seller has delivered excess gas to the 19-005 buyer (12-014) then the seller will not be liable for any subsequent shortfall which is caused by the seller having made that excess gas delivery, because the seller may have over-extended its facilities in order to do so. The buyer should reject this proposition, however, on the grounds that the seller had the discretion whether or not to deliver excess gas, and might even have earned a premium for doing so, and so should have factored this risk into making its decision, and so should still be liable to the buyer for any resultant shortfall. 19-006 A particular formulation which might appear in a sales contract is that which a seller might describe as “deliver or pay” (DOP). This principally obliges the seller to deliver gas to the buyer in response to the buyer’s requirements, in line with the normal expectations of the sales contract, but with an option for the seller not to deliver a particular quantity of gas at any time, which creates an alternative method of contractual performance for the seller. 1 Where the DOP option is exercised the seller would be free to dispose of the undelivered gas as it sees fit (presumably in satisfaction of a more lucrative commercial opportunity) and would, in consideration of the exercise of the option, pay to the buyer a pre-determined amount of compensation, typically determined as a fixed percentage of the deemed value of the undelivered gas, as a liquidated damage. DOP is, in the mind of some sellers, the natural counterpoint to the optionality which the buyer has in a take or pay formulation (16-004). The seller’s exercise of the DOP option would be a commercial election. Although monetary compensation would still be payable by the seller, provisions allowing the buyer to terminate the sales contract for the seller’s failure to deliver gas (39-005) would not be activated in respect of an individual undelivered quantity (although a termination right for an aggregated delivery failure could still apply). In contrast to the take or pay formulation however the seller ordinarily does not have the ability to later make good the DOP payment which it has made in the same way that the buyer can recover a take or pay payment through the exercise of the equivalent of a make up right (17-002). From the buyer’s perspective the economic consequences of the DOP option and a seller’s delivery failure could be largely similar; the buyer does not receive the gas which it was expecting but does receive some monetary compensation from the seller. The undelivered quantities of gas should still count towards satisfaction of the buyer’s take and pay or take or pay commitments. DOP reduces the security of supply to the buyer, however, and consequently the circumstances in which the DOP option can be exercised could be limited in a sales contract, such as by reference to a maximum quantity of gas per contract year, rather than being left to be applied to the absolute discretion of the seller.

Footnotes 1

See P-16.

End of Document

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The Seller’s Liability for Shortfall, UKBC-GASLNGS 493298665 (2023)

The Seller’s Liability for Shortfall Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure The Seller’s Liability for Shortfall 19-007 As a starting point for all of the remedies discussed below, where the seller fails to deliver gas as required by the terms of the GSA then the buyer will not be required to make payment to the seller for the shortfall gas quantity, and there should also be appropriate adjustments to the buyer’s take and pay or take or pay commitments. However, the buyer will usually want more than revenue neutrality from the seller in response to a shortfall. Where the seller fails to deliver gas as required by the terms of the GSA the buyer might suffer a loss of revenue from not having the gas for whatever commercial purpose that gas is required by the buyer. The buyer might also be exposed to a liability for a failure to supply gas where the buyer is reselling gas to end-users (6-010), to the incremental cost of acquiring alternative fuels (wherever possible) in order to make good the seller’s failure to deliver gas or to a liability to network imbalance charges where the buyer has reserved network capacity but has not input gas as required (11-004). On the other hand it is not inconceivable that the buyer might incur no obvious loss or liability in consequence of the seller’s shortfall (e.g. where the buyer is able to procure alternative supplies of gas at a price which is the same or even lower than the contract price specified in the GSA in order to make good the shortfall, where the buyer is able to call in gas from storage or where the buyer has no loss or liability downstream of the seller’s delivery failure). 19-008 The GSA might be silent on the issue of the seller’s liability for shortfall but most buyers will expect that the seller should undertake some sort of express liability for its shortfall and consequently there are several options for a remedy which might be applied under the GSA in favour of the buyer: (i) Shortfall price discount. A popular expression of the seller’s liability for shortfall is a mechanism whereby a quantity of gas, equivalent to the shortfall quantity, which is subsequently delivered by the seller will be paid for by the buyer at a price which is set at an agreed discount to the contract price, called the “shortfall price discount”. The buyer will accrue a running shortfall aggregate to be discharged against subsequent deliveries of gas by the application of the shortfall price discount. If over a defined period of time (say a month) the quantity of gas delivered by the seller is insufficient to discharge the accrued shortfall aggregate then the undischarged shortfall aggregate will accrue and will be carried forward to be applied against future deliveries of gas in the succeeding months. As an alternative to applying the shortfall price discount to following quantities of gas where the shortfall arises in respect of a period when gas has been delivered by the seller but not yet invoiced for (20-002) the invoice could, when it is delivered by the seller, be amended to reflect the immediate application of the shortfall price discount to the contract price for that delivered gas. The shortfall price discount is a tool which allows a form of set-off (20-008) of the seller’s liability to compensate the buyer for shortfall against future gas sales revenues receivable by the seller from the buyer. An offset of the seller’s liability to make payments to the buyer for a seller’s delivery failure against the amounts which are ordinarily due for payment by the buyer to the seller will also reduce the amounts due for payment from the buyer to the seller and so could also lessen the extent of the required collateral support in respect of the GSA (15-002), although this cannot be quantified as such at the outset of the GSA. The shortfall price discount is also a form of liquidated damage which is payable by the seller for the seller’s failure to deliver gas, notwithstanding that the actual level of loss or liability which is incurred by the buyer in consequence of the seller’s shortfall could be

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The Seller’s Liability for Shortfall, UKBC-GASLNGS 493298665 (2023)

lesser or greater than the recovery which is afforded by the shortfall price discount remedy. This explains the statement which often appears in shortfall price discount provisions that the remedy satisfies whatever test is necessary to prove a valid liquidated damage (36-009), which is intended to preclude an attempt to impugn such a limitation on the seller’s liability in favour of compensating the buyer for its actual losses by claiming that it is a penalty. Such an attempt might be made by the buyer where its actual losses exceed the remedy afforded by the shortfall price discount or paradoxically (although it is less likely) could be made by the seller where the buyer’s actual losses are less than the remedy afforded by the shortfall price discount. Since the contract price payable for gas under a GSA could go up or down over time there could be some debate between the parties as to the price which should be applied as the basis of the discount afforded by the shortfall price discount—whether it should be the price applicable when the shortfall arose or the price applicable when the next following quantities of gas against which the shortfall price discount would apply are delivered. Although this could cut both ways between the seller and the buyer, the former formulation at least promotes the predictability of the shortfall price discount over subsequent increases or decreases in the price which would be effective when the deliveries of gas eventually resume. The following example demonstrates how the shortfall price discount operates in relation to the following quantities of gas (where, for the sake of the example, shortfall is measured as an absolute failure of the seller to deliver gas in respect of a particular nomination without a shortfall tolerance or the aggregation of nominations): BUYER NOMINATION

SELLER

SHORTFALL

BUYER PAYMENT OBLIGATION

DELIVERY

SHORTFALL AGGREGATE

100

100

0

100@ price

0

100

20

80

20@ price

80

60

60

0

60@ shortfall price

20

100

100

0

20@ shortfall price 80@ price

0

100

100

0

100@ price

0

Where the seller has secured a shortfall tolerance in the GSA (see above) then on the basis of the same example the position will differ to the extent that the shortfall falls within that shortfall tolerance (where, for the sake of the example, a quantity of shortfall in excess of the shortfall tolerance will cause the shortfall price discount to apply to the entire shortfall quantity): BUYER NOMINATION

SHORTFALL

SELLER

TOLERANCE

DELIVERY

SHORTFALL

BUYER

SHORTFALL

PAYMENT

AGGREGATE

OBLIGATION

100

10

100

0

100@ price

0

100

10

95

5

95@ price

0

100

10

20

80

20@ price

80

60

10

60

0

60@ price

20

100

10

100

0

80@ price 20@

0

shortfall price

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The Seller’s Liability for Shortfall, UKBC-GASLNGS 493298665 (2023)

100

10

100

0

100@ price

0

Some GSAs also prescribe in favour of the buyer that where the quantity of shortfall falls within the shortfall tolerance then subsequent quantities of gas equal to the amount of shortfall falling within the shortfall tolerance will be paid for by the buyer at a special shortfall tolerance price, which is set at a discount to the contract price but at a lesser level of discount than is represented by the full value of the shortfall price discount. To illustrate this by continuing the previous example: BUYER NOMINATION

SHORTFALL

SELLER

TOLERANCE

DELIVERY

SHORTFALL

BUYER

SHORTFALL

PAYMENT

AGGREGATE

OBLIGATION

100

10

100

0

100@ price

0

100

10

95

5

90@ price 5@

0

shortfall tolerance price 100

10

20

80

20@ price

80

60

10

60

0

60@ price

20

100

10

100

0

80@ price 20@

0

shortfall price 100

10

100

0

100@ price

0

As a remedy for the seller’s failure to deliver gas the shortfall price discount has two drawbacks for the buyer: (a) Adequacy of compensation. The amount recovered as a discount to the contract price might be inadequate to compensate the buyer for all of the losses and liabilities which the buyer has actually incurred in consequence of the seller’s failure to deliver gas, in which case the buyer would prefer a remedy which compensates the buyer for its actual losses (see below). (b) Application of the shortfall price discount. The shortfall price discount is only a credible remedy for the buyer if the seller will actually deliver further quantities of gas against which the shortfall price discount can be applied. Where this might be in doubt (e.g. where shortfall occurs at the start of the GSA before the flow of gas has commenced or where shortfall occurs at the end of the GSA where there is no more gas to flow) then the buyer is at risk of being unable to recover its accrued shortfall price discount entitlements. A shortfall price discount entitlement will continue to accrue in the buyer’s favour over the lifetime of the GSA, and could exist unredeemed at the point when the GSA eventually comes to an end. To overcome the problem faced by the buyer of accrued but unredeemed shortfall price discount entitlements at the end of the GSA’s lifetime the parties might agree that the seller will compensate the buyer for any such undischarged entitlements through the payment of an amount of money (called a “cash-out”, and calculated typically by reference to the aggregate quantity of accrued and undischarged shortfall price discount entitlements multiplied by the value of the pricing discount which would have applied based on a deemed price) or through the delivery of equivalent price-valued quantities of gas or other hydrocarbon products (called a “gasout”). The buyer might also press for the application of a cash-out or a gas-out right periodically during the lifetime of the

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The Seller’s Liability for Shortfall, UKBC-GASLNGS 493298665 (2023)

GSA in order to reduce the undischarged shortfall aggregate to manageable levels and so to reduce the extent of the buyer’s ongoing credit risk exposure to the seller. This would be a cash payment liability of the seller for which the buyer could require the provision of collateral support from the seller (15-002). There could be limits in the GSA to the circumstances in which the buyer is able to access any cash-out or gas-out rights, such as where the buyer is otherwise in default under the GSA or where the GSA has been terminated because of the buyer’s default (39-005). Where the GSA ends by the expiry of time (39-002) and the buyer has unrecovered shortfall price discount entitlements then the seller could also suggest a limited extension to the GSA’s duration to allow gas to be delivered and subjected to the shortfall price discount, along the lines of a make up extension period (17-005).The danger to the buyer with this solution, however, is that if no gas can be delivered by the seller during such an extension period then the buyer will have derived no benefit from such an extension and for this reason a cash-out or a gas-out could be more beneficial to the buyer. Consequently some GSAs provide for the combination of an extension to the basic term and then a cash-out at the end of the extension period of any unrecovered shortfall price discount entitlements then remaining. Where the GSA also contains provision for an extension period to allow the buyer to recover accrued and unrecovered make up entitlements the GSA should address the potential for the overlap of both extension periods. A formulation which is sometimes employed in such circumstances is to provide that the make up extension period takes precedence (which benefits the buyer, which can recover gas at a zero price rather than at a discounted price) and that accrued shortfall entitlements will be otherwise addressed (e.g. via a cash-out). If gas is delivered by the seller to which no price ostensibly applies (e.g. where, as part of the commercial transaction, a certain tranche of gas is provided for free by the seller) then a remedy in the alternative to a shortfall price discount might be applied in the buyer’s favour. The volume of shortfall gas which was not delivered by the seller could remain in a notional bank for future delivery by the seller, to which the shortfall price discount accrues and which will be applied in the buyer’s favour against future deliveries of gas to which the price applies. (ii) Actual loss compensation. The seller could be required to compensate the buyer for the buyer’s loss of revenue from not having the gas and/or for any liability which the buyer might incur for its own failure to supply gas where the buyer is reselling gas. This, essentially, is a commitment of the seller to pay damages at large to the buyer. The seller’s compensation obligation should be subject to the buyer’s obligation to mitigate the seller’s loss and should be subject to any consequential loss liability exclusion in the GSA (36-008). 2 Such a remedy would oblige the buyer to demonstrate its losses to the seller, which the buyer could be reluctant to do. This would be a cash payment liability of the seller for which the buyer could require the provision of collateral support. (iii) Replacement gas costs. The seller could be required to compensate the buyer for the buyer’s exposure to the incremental cost of procuring replacement gas (wherever such a procurement is possible) in order to make good the seller’s shortfall. The incremental element for this compensation measure is the cost of the replacement gas which is in excess of the amount which the buyer would otherwise have paid the seller under the GSA for the gas which was the subject of the shortfall. Of course, replacement gas might also be procured by the buyer at a lower price than that which the GSA would have charged—in which case the buyer has no loss and the seller has no liability. This remedy is sometimes called “cover standard damages”, in recognition of the use of this term in Article 2 of the New York Uniform Commercial Code (UCC), as the remedy which is provided by the UCC for a seller’s failure to deliver goods to a buyer. The agreement of the seller to compensate the buyer for the cost of replacement gas should be limited to costs paid by the buyer under arm’s length commercial agreements with a genuine third party supplier, in order to protect the seller from the possibility that the buyer might acquire replacement gas from an affiliated entity at inflated prices in order to maximise its recovery against the seller. A GSA could also provide that if the buyer was unable to procure replacement gas the buyer will be deemed to have bought replacement gas at the same price which the buyer would have paid the seller under the GSA for the gas which was the subject of the shortfall. This proxy value leads to no incremental value which the seller is obliged to pay to the buyer and effectively neuters the buyer’s shortfall remedy. (iv) Combined remedies. © 2023 Thomson Reuters.

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The Seller’s Liability for Shortfall, UKBC-GASLNGS 493298665 (2023)

In a GSA both remedies of a shortfall price discount and an agreement pay actual loss compensation could apply, with the option being given to the seller or the buyer (depending on how the particular GSA is negotiated) as to which remedy the party with the option right may wish to exercise in any particular shortfall situation. The trigger for the exercise of the option will be whichever remedy for shortfall gives the greatest recovery (where the buyer holds the option) or the least liability (where the seller holds the option). Where such a two-tier remedy is applied the seller should consider carefully the validity of the statement that the shortfall price discount component represents an effective liquidated damages provision, since accompanying this with a provision in the GSA for an agreement of the seller to compensate in respect of the buyer’s actual losses or liabilities could jeopardise the validity of such a statement.

Footnotes 2

In Scottish Power UK Plc v BP Exploration Operating Co Ltd [2015] EWHC 2658 (Comm); [2016] 1 All E.R. (Comm) 536 the High Court considered, in the context of a long-term GSA and a dispute over undelivered gas, the exclusion of liability of a party for “… any loss of use, profits, contracts, production or revenue or for business interruption howsoever caused …”, before concluding that these words would be construed narrowly and would not necessarily exclude a buyer’s claim for damages based on the incremental costs of replacement gas (because such a claim did not necessarily indicate the recovery by the buyer of what might ordinarily be understood to be consequential losses). This interpretation was also consistent with earlier decisions in Transocean Drilling UK Ltd v Providence Resources Plc [2014] EWHC 4260 (Comm); [2015] 2 All E.R. (Comm) 557 and Glencore Energy UK Ltd v Cirrus Oil Services Ltd [2014] EWHC 87 (Comm); [2014] 1 All E.R. (Comm), where in both cases the court refused to allow consequential loss liability exclusion wording to be used to defeat claims for what were regarded as properly being direct losses.

End of Document

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5

Wilful Default, UKBC-GASLNGS 493298660 (2023)

Wilful Default Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Wilful Default 19-009 The seller’s liability for shortfall will be limited through the application of whatever remedies are prescribed in the GSA for shortfall. It could be, however, that the seller’s shortfall is argued by the buyer to be attributable to an intentional decision of the seller to disregard the obligation in the GSA to deliver gas in response to the buyer, whereupon the buyer might allege wilful misconduct (depending on how that term is defined in the GSA—36-008) on the seller’s part. The element contained in a customary definition of wilful misconduct that a disregard of the provisions of the GSA might be excused by acts done in good faith would suggest that the most likely circumstance where wilful misconduct might be alleged in the context of the seller’s shortfall would be where the seller has made a deliberate decision not to deliver gas to the buyer in order to sell gas to another person on more advantageous terms (to the extent that a pipeline which services the GSA is configured to permit the sale of gas to more than one buyer) and to accept whatever shortfall liability the GSA specifies as the inevitable economic consequence of doing so. The GSA could provide that nothing will limit or exclude the liability of a party for wilful misconduct. In the context of shortfall this could mean that any limitations on the seller’s liability for shortfall would not apply in the seller’s favour where the seller’s shortfall was caused by the seller’s wilful misconduct, such that the buyer could seek to bring an action for the recovery of its actual losses or liabilities arising in consequence of the seller’s shortfall rather than be obliged to rely on the mechanisms in the GSA for the determination (and the potential limitation) of the buyer’s remedies. The potentially open liability of the seller to compensate the buyer for its losses must also be read in the light of any exclusion of consequential losses which might be recited by the GSA (36-008). What is recoverable against the seller as losses by the buyer in these circumstances will depend on how the consequential loss exclusion is phrased in the GSA. 19-010 Another option for the buyer, when faced by the seller’s wilful default, could be for the buyer not to seek to recover its losses from the seller but rather to recover the profits which were made by the seller from the diversion sale of gas. The buyer might do this by applying the English law equitable remedy of an account of profits. In contrast to the principle of relief under the common law by the award of restitutionary damages to make good the loss suffered by an innocent party following a breach of contract by the party in default, English law has developed the equitable principle that a party in default could on occasion be required to account to the innocent party for the profits which it has improperly received in consequence of the breach of contract. Because the remedy of the account of profits measures the gain made by the party in default, rather than the loss of the innocent party, the account of profits could produce a quite different result for the buyer. An account of profits is intended to prevent a party in default of a contract from being unjustly enriched, and as a remedy is sometimes referred to as “restitutionary damages” (a term which is applied not without criticism). The remedy of account of profits is most commonly found in the context of tort claims involving interference with property rights, although there is increasing awareness of the possibility of applying the remedy to a breach of contract, albeit subject to the continuing expectation that it is an exceptional remedy and will not always be awarded. 3 For this remedy to make economic sense the buyers must ensure that the seller’s profits exceed the buyer’s losses, and the practical issue for the buyer to be aware of is that the buyer knows its losses but will not know the seller’s profits, at least not without the effort and expense of some sort of adjudicatory proceeding which would compel the seller to disclose its position. Thus, the buyer could very well be in a position of not knowing which remedy to pursue at the time of the alleged wilful default.

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Wilful Default, UKBC-GASLNGS 493298660 (2023)

Footnotes 3

Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323; [2003] 1 All E.R. (Comm) 830; Esso Petroleum Co Ltd v Niad Ltd Unreported 22 November 2001 CD.

End of Document

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2

Other Shortfall Remedy Issues, UKBC-GASLNGS 493298661 (2023)

Other Shortfall Remedy Issues Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Other Shortfall Remedy Issues 19-011

Several other issues should be considered in the context of the remedies available to the buyer for the seller’s shortfall: (i) Shortfall at the start date. If the start date (10-009) has occurred and the seller is not ready to deliver gas to the buyer at the delivery point on the start date then the seller’s liability for shortfall could be the subject of a more punitive late start liability regime which is aimed specifically at the failure of the seller to be ready on the start date. (ii) Quantity adjustment and non-payment. Whichever remedy for shortfall applies, the buyer will also expect an adjustment to the buyer’s take and pay or take or pay commitment and relief from the take and pay commitment, and also that the buyer should not be obliged to make payment for the quantity of gas which has not been delivered. If the GSA applies pre-payment for gas by the buyer as a form of collateral support then the seller could be obliged to reimburse the buyer. (iii) Termination for prolonged shortfall. A GSA could give the buyer a right of termination for a volume of shortfall which reaches a particular threshold (39-005), in order to protect the buyer against being locked into a GSA which is characterised by prolonged or persistent shortfall. This is useful in enabling the buyer to seek a more reliable replacement gas sales arrangement, although a lack of alternative supply options in the buyer’s favour could render this remedy meaningless. In practice, if the buyer was minded to exercise a right to terminate the GSA for the seller’s default beyond a defined threshold then the buyer would only do so after it had maximised its recovery of any monetary remedies due from the seller for a shortfall. (iv) Capping the seller’s shortfall liability. The seller could suggest a cap (to apply annually and in the aggregate over the lifetime of the GSA) on its liability under the GSA (36-008), which could also apply to the seller’s liability to compensate the buyer for shortfall. In respect of the seller’s liability for shortfall this cap could be commercially difficult for the seller to defend because of the implication that once the seller’s liability for shortfall has reached the level of the liability cap then thereafter the seller can continue to shortfall the buyer without any further liability for its delivery failure. Consequently a specific exception to the principle of a cap on liability could be made for the seller’s shortfall liability, although where the seller has agreed to compensate the buyer for its actual losses arising in consequence of the seller’s shortfall (see above) then the seller might argue again that a cap on its aggregate liability is particularly necessary. If there is a cap on the seller’s shortfall liability and the buyer also has a right to terminate the GSA for the seller’s prolonged shortfall (see above), the risk to the buyer is that the shortfall liability cap is reached well ahead of the shortfall threshold which would allow the buyer to terminate the GSA. To protect the buyer from this lacuna, where it has no effective remedy for the seller’s shortfall and no right to terminate the GSA, it could be provided in the GSA that the shortfall threshold for application of the termination right is accelerated in the buyer’s favour once the seller’s liability cap for shortfall has been reached.

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Other Shortfall Remedy Issues, UKBC-GASLNGS 493298661 (2023)

(v) Liability of a third party. Where shortfall has arisen because of a failure of the transporter to transport gas to the delivery point in accordance with the terms of the GTA (26-023), rather than because of any particular failure of the seller, then the seller will seek to pass through its liability to the transporter. This will be a matter to be recited separately in the GTA, however, and typically will not be expressed as a condition of the buyer’s recovery for shortfall against the seller under the GSA. End of Document

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2

Shortfall and Other Prices and Quantities, UKBC-GASLNGS 493298667 (2023)

Shortfall and Other Prices and Quantities Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Shortfall and Other Prices and Quantities 19-012 The application of the principles of shortfall and the shortfall price discount must also be considered in light of the potential for overlap with other gas quantities and pricing mechanisms in the GSA: (i) Shortfall and excess gas. The seller could be delivering gas to which the shortfall price discount would apply (e.g. in compensation for a previous shortfall event) and the buyer requests the delivery of excess gas (12-014). The excess gas price could be priced as a premium to the contract price subject to the shortfall price discount rather than to the contract price, which benefits the buyer because it results in a lower price. It might also be that the seller shortfalls in the delivery of excess gas. In this situation the GSA might express that the seller can be equally liable for a failure to deliver excess gas, to which the agreed shortfall remedy in the GSA will apply. (ii) Shortfall and make up. A particular debate arises in connection with the situation where the seller fails to deliver gas when the buyer is recovering make up (17-002). The seller might argue that this situation should not constitute shortfall because the quantity of undelivered make up remains in the buyer’s make up bank and is unaffected but this argument will be harder for the seller to sustain where the GSA imposes limitations upon the buyer’s ability to freely recover its accrued make up which could result in the buyer’s loss of the unrecovered make up quantity, or where the buyer has incurred costs in being ready to take delivery of make up. The buyer could also argue that it will suffer some loss or liability through not having that make up available, for which the buyer should be compensated through the GSA’s shortfall remedy. The seller could also decide to fail to deliver make up and to incur whatever sanction the GSA imposes for that shortfall in the interests of selling the intended make up gas quantity to a third party for a return which outweighs the applicable shortfall remedy under the GSA. This could expose the seller to a claim by the buyer for whatever liability flows under the GSA for wilful misconduct (see above). (iii) Shortfall and undertake gas or overtake gas. It could be that the seller shortfalls in the delivery of gas and the buyer undertakes or overtakes against whatever quantity of gas was delivered, or that the buyer undertakes or overtakes against a quantity of gas to which the shortfall price discount would apply in consequence of a previous shortfall event. These interfaces are addressed at 18-016. End of Document

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1

Reclassifying Shortfall, UKBC-GASLNGS 493298664 (2023)

Reclassifying Shortfall Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Reclassifying Shortfall 19-013 A particular quantity of gas might later be reclassified to be shortfall or it might be removed from classification as shortfall, in each case by the agreement of the parties or in consequence of the determination of an expert (40-004) or other adjudicatory process (40-006, 40-008). The GSA should include a mechanism for the reclassification of actual or prospective shortfall quantities to address, for example, the following circumstances: (i) Non-delivered gas later reclassified to be shortfall. For a non-delivered quantity of gas which was originally not classified as shortfall (e.g. through the application of force majeure relief or a shortfall exception) but which has subsequently been reclassified to be shortfall (through the removal of force majeure relief or the shortfall exception). (ii) Shortfall later reclassified not to be so. For a non-delivered quantity of gas which was originally classified as shortfall but which has subsequently been removed from classification as such (e.g. through the application of force majeure relief or a shortfall exception in respect of that gas). (iii) Non-delivered gas later proven to have been delivered. For what was previously believed to be a non-delivered quantity of gas (which might originally have been classified as shortfall) which is subsequently proven to have been delivered (e.g. through the discovery of a metering, timing or accounting error in respect of that gas). (iv) Delivered gas later proven not to have been delivered. For what was previously believed to be a delivered quantity of gas which is subsequently proven not to have been delivered (e.g. through the discovery of a metering, timing or accounting error in respect of that gas), where the resultant nondelivered quantity of gas might or might not be classified as shortfall. 19-014 In each of the above circumstances some adjustments will be necessary between the seller and the buyer in respect of the various components of the applicable shortfall remedy: (i) Adjustments to the quantity obligation. An adjustment to the take and pay commitment or relief from the take or pay commitment will be required for any newlyclassified quantity of shortfall and there will be a cancellation of adjustments or reliefs for any quantity of shortfall which has been removed from classification as such. Where any quantity of non-delivered gas is reclassified either way between shortfall and non-delivered gas for which the seller is able to secure force majeure relief then only the characterisation of the adjustment to the quantity obligation for non-delivered gas will change, not the amount of the adjustment or relief itself. (ii) Adjustments to the shortfall aggregate.

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Reclassifying Shortfall, UKBC-GASLNGS 493298664 (2023)

The shortfall aggregate will be increased in respect of any newly-classified quantity of shortfall and will be reduced in respect of any quantity of gas previously believed to be shortfall which has subsequently been removed from classification as such. Where, however, a quantity of shortfall has already been compensated for by the subsequent delivery of gas to which the shortfall price discount has applied then it will be too late to reduce the shortfall aggregate and an adjustment will instead be required between the parties in respect of the payment already made for that gas, such as a repayment from the buyer to the seller of an amount equal to the value of any improperly applied shortfall price discount. (iii) Adjustments in respect of payments already made. There may need to be some reconciliation between the parties for payments made for gas originally believed to have been delivered but subsequently recognised not to be so, where the seller should reimburse any over-payment to the buyer, and for payments due for gas originally believed not to have been delivered but subsequently proved to have been delivered, where the buyer should make additional payment to the seller. There should be no need for repayment between the buyer and the seller where there is a reclassification of a quantity of non-delivered gas between shortfall and a non-delivery for which the seller can claim force majeure relief, since in either case the buyer would not at the outset have been required to make payment for that non-delivered quantity of gas. Any reclassification mechanism in the GSA which might consider the application of any of the above adjustments is more likely to set out generic principles than a prescriptive regime for the reclassification of gas quantities. 4

Footnotes 4

See P-17.

End of Document

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Administering Shortfall, UKBC-GASLNGS 493298662 (2023)

Administering Shortfall Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 19 - The Seller’s Delivery Failure Administering Shortfall 19-015 Several administrative provisions will typically apply in respect of the shortfall remedies under the GSA: (i) Expert determination. Given the scope for disagreement between the seller and the buyer as to whether a shortfall event has arisen the GSA should provide a mechanism for the prompt resolution of any disputes which arise, which would likely be a technical or operational issue to be assessed. This could entail recourse to an independent expert for determination (40-004). (ii) Notification of a potential shortfall. Where the seller suffers, or is likely to suffer, a reduced ability to deliver gas to a buyer then the GSA should oblige the seller (wherever the seller is able) to notify the buyer of such a reduction and of the potential for shortfall. As a reduction in gas deliveries becomes apparent there is a danger that the buyer’s gas reception or consumption facilities may automatically trip and shut down, which could have problematic consequences for the buyer and/or for end-users downstream of the buyer (6-010). This might be better managed where the seller notifies a potential reduction which would allow the buyer and/or the end-users to shut down facilities or to switch to alternative fuels if that is an option. Such a notification will also underscore the application of any good faith nominations regime (18-006). (iii) Pro rata allocation of shortfall. Where the seller is delivering gas to several buyers and is unable to deliver gas in full satisfaction of all of their nominations or requirements then such an inability will affect those several buyers simultaneously. The usual regime which the seller undertakes in the GSA is that the aggregate quantity of gas which is available (if any) will be allocated rateably between all of the affected buyers (e.g. pro rata to their respective nominations or requirements), such that the burden of the seller’s shortfall is shared and no single buyer gets a priority right of delivery, or suffers disproportionately. Alternatively it is sometimes the case that a particular buyer may have successfully negotiated a priority right of gas delivery. This is a factor which a new buyer from the seller should make itself aware of when negotiating its GSA. Where the seller can be proved to have failed to exercise a rateable allocation of an aggregate shortfall between its multiple buyers then a buyer which has been prejudiced by that failure (e.g. through being allocated less gas and more of the aggregate shortfall than should have been the case) might seek redress from the seller. From the affected buyer’s perspective there might be a reclassification exercise whereby the non-delivered quantity of gas which should have been delivered ceases to be shortfall (i.e. the buyer loses the shortfall remedy) and the affected buyer becomes entitled to subsequently receive (and to pay for) that nondelivered quantity of gas. However, this should at least be at the affected buyer’s option rather than applied automatically, since that buyer might not need or be able to accommodate a further quantity of gas and so might prefer to maintain the original shortfall remedy. The affected buyer could argue that this reclassification simply restores the originally required position and does not penalise the seller for its failure to properly effect the rateable allocation of the aggregate shortfall. As an alternative, therefore, the seller might be obliged to deliver the requisite quantity of gas for free. The affected buyer might also argue that the seller has wilfully misconducted itself in failing to effect the necessary rateable allocation and so will have an open liability for the losses or liabilities incurred by that buyer without the limitations of liability which are

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Administering Shortfall, UKBC-GASLNGS 493298662 (2023)

imposed by the shortfall remedies. The difficulties which are typically associated with successfully proving an allegation of wilful misconduct could make it difficult for the buyer to sustain such a claim in this circumstance and a reclassification of gas quantities might be the best outcome that can realistically be hoped for. The buyer which, from the seller’s failure to effect the necessary rateable allocation, has been allocated more gas and less of the aggregate shortfall than should have been the case, has not been prejudiced. Whatever quantity of gas which was delivered by the seller would be within that buyer’s original nominated quantity and will still be paid for by the buyer. It might be unfair to penalise that buyer through some form of reclassification for the unjust enrichment which it has enjoyed through what is essentially the seller’s error, but a buyer under another GSA with the seller which has been allocated more shortfall and less gas as a corollary of such an occurrence will have its own position to protect. Where a pattern emerges of the seller’s failure to effect the rateable allocation of an aggregate shortfall which results in a particular buyer repeatedly receiving more gas and less of the aggregate shortfall then an affected buyer might more successfully sustain an allegation of wilful misconduct by the seller. Any such reclassification mechanisms in the GSA are more likely to set out generic principles than a prescriptive regime for the reclassification of gas quantities. (iv) Auditable allocation of shortfall. Where the GSA provides for the rateable allocation of an aggregate shortfall then the buyer may require an audit right (exercisable possibly through an independent auditor) so that the buyer can ensure that the allocation has been properly performed by the seller. If through such an audit the buyer discovers that the required allocation was not properly performed and consequently the buyer has suffered a greater share of the aggregate shortfall than it should have done then the buyer might require a reclassification of what is and is not alleged to be shortfall, with the remedies to flow accordingly from that reclassification. (v) Reports and access to facilities. The buyer may require the seller to furnish periodic reports in respect of the reasons for the seller’s shortfall and rights of access to and inspection of the seller’s facilities (23-005) in order that the buyer may better understand how the seller’s facilities are operating and to predict any future exposures. However, the seller could be reluctant to grant such access rights in the case of shortfall, where the seller may argue that the buyer should be content with whatever economic remedy the GSA provides for shortfall and that an access and inspection right would be operationally impractical to accommodate. End of Document

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Introduction, UKBC-GASLNGS 493298674 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment Introduction 20-001 This chapter addresses the provisions relating to invoicing and payment in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-039, although there will be some overlap between the two. A GSA will entail the making of monetary payments by one party (the payor) to the other party (the payee). Payment will be made principally by the buyer to the seller for gas sold and for amounts due under a take and pay or a take or pay commitment, but certain payments might also be due under a GSA from the seller to the buyer. Payment might also be due to be made both ways simultaneously under a GSA, such that a party is simultaneously a payor and a payee. In order to facilitate the making of these various payments a GSA will recite a mechanism for the issuing of invoices and for the settlement of those invoices by the payor, and for what happens if a payor disputes a prospective payment or fails to make a payment when due. End of Document

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The Invoicing and Payment Cycle, UKBC-GASLNGS 493298672 (2023)

The Invoicing and Payment Cycle Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment The Invoicing and Payment Cycle 20-002 Under a GSA the buyer (as payor) should be obliged to pay the seller (as payee) for gas which the buyer has nominated or is deemed to have nominated for delivery (18-002) and which the seller has delivered, without reference to whether the buyer has actually taken delivery of that gas. If the GSA recites a formulation whereby the buyer is obliged only to pay for gas which the buyer has actually taken delivery of then the buyer would be able to nominate gas but not take delivery of that gas (assuming this is an operational possibility) and so not have to pay for it. This would economically inconvenience the seller, particularly if the seller has incurred some financial liability under a GTA in order to transport that gas to the delivery point. The obligation of the buyer to pay the seller against the buyer’s nominations for gas, rather than against the buyer’s actual offtakes of gas, will also better support the application of an undertake gas premium (18-012). A GSA will set out a cycle for the preparation and rendering of invoices, which are typically prepared by the seller and given to the buyer. This usually happens monthly in arrears for gas delivered by the seller, although the seller might request more frequent than monthly invoicing in the interests of improving its cash flow, 1 and annually in arrears for take and pay or take or pay payments due, unless more frequent payment is agreed. The buyer typically has no involvement in the preparation of these invoices (unless self-billing applies, see below). Where gas is traded on a non-physical basis between the parties (6-012) the invoicing will take place after a defined trading period and may be subject to netting (see below) between the parties where they have both been buying and selling through their respective gas trades. 20-003 A monthly invoice could be part of a wider monthly statement which will summarise the movement of gas quantities under the GSA in the preceding month, including nominations (18-002), seller’s delivery failure liabilities (19-002), excess gas (12-014), undertake gas or overtake gas (18-010, 18-013) and certain other commercial elements. The seller’s invoicing responsibility requires that the seller will apply whatever price discounts and offsets are due to the buyer under the GSA in the invoice. The seller could fail to do this (including where the seller disputes whether the conditions for a discount or an offset have arisen) and could instead invoice the buyer for the full amount. In this case the buyer will have to formally dispute the invoice (see below) in order to assert its entitlements. An invoice may need to be drawn up in a form which satisfies any rules necessary to constitute it as a valid tax invoice and a GSA might attach a pro-forma monthly statement and a pro-forma invoice, to guide the parties. An invoice should also reflect the agreed tax allocation between the parties (41-026). Where a GSA provides for the sale of gas by several sellers (9-004) there could be the need for several invoices. 20-004 At the end of each contract year (10-015) there could be a reconciliation exercise for amounts invoiced in that contract year in recognition of the possible need to reclassify gas deliveries, e.g. to take into account quantities of gas which might have been paid for at the contract price when the shortfall price discount (19-008) should have been payable or vice versa, or quantities of gas which the buyer has paid for but which should have been classified as make up (17-002). This could result in additional payments being due from the buyer to the seller or a reimbursement being due from the seller to the buyer.

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The Invoicing and Payment Cycle, UKBC-GASLNGS 493298672 (2023)

In establishing the invoicing and payment cycle in the GSA each party will need to take account of its expectations of revenue receipts and payment exposures outside of the GSA as appropriate, and will need to match those factors within that cycle in order to minimise the impact on its working capital requirements. The buyer could be receiving revenues from any end-users to whom it is reselling the gas (6-010) and will wish to ensure that its obligation to pay the seller comes in time after the receipt of those revenues. Equally, the seller will wish to secure revenues from the buyer ahead of its scheduled obligation to make any necessary payments such as operating expenditures or gas transportation costs. These various aspirations will be competitive between the parties, and not all will be capable of being accommodated within the same GSA. 20-005 The following table demonstrates a typical monthly invoicing and payment cycle (including the application of suspension rights for the seller, see below) under a GSA:

From this example it will be apparent that the seller’s right to suspend the delivery of gas for non-payment by the buyer in respect of quantities of gas delivered during a month will not become effective until 18 days of the next month have elapsed, and during this period the seller will have continued to deliver gas to the buyer (otherwise a seller’s delivery failure liability would apply). This is the credit risk period which the seller is exposed to and the seller will be keen, when establishing the invoicing and payment cycle, to reduce the extent of this exposure as much as possible. 20-006 In contrast to the customary seller-invoicing route, some GSAs have a self-billing mechanism whereby the buyer prepares its own invoice and effectively self-bills itself for gas which has been supplied to it in respect of a given period. 2 The buyer will send a copy of the invoice to the seller and will make the payment which is due. This mechanism is in part a legacy of a regime which allowed the existence of a monopoly gas buyer, where the power of that monopoly was reflected by the right of that buyer to impose such a self-billing mechanism on all of its gas sellers. Such a mechanism could also help small, relatively poorlyresourced sellers, by shifting the administrative burden of invoicing onto the buyer. Such a self-billing mechanism could also apply on an annualised basis, wherein the buyer would apply that regime to its annual take and pay or take or pay determinations. A consequence of the self-billing mechanism is that the buyer has an automatic right of set-off (see below), because the buyer can apply whatever it owes to the seller and simply invoice itself (with a copy to the seller) for the net amount which it feels is due for payment. It also becomes impossible for the seller to provoke a conventional payment dispute by invoicing the buyer for a full amount and the buyer refusing to pay the disputed portion of an invoice. Consequently, a payment dispute mechanism in a GSA (see below) needs to be written to reflect the ability of the seller to dispute a buyer-prepared invoice if self-billing is a construction which is permitted by a GSA.

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The Invoicing and Payment Cycle, UKBC-GASLNGS 493298672 (2023)

Footnotes 1 2

See P-18. See P-19.

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Payment, UKBC-GASLNGS 493298673 (2023)

Payment Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment Payment 20-007 A seller will require prompt payment for gas delivered and in respect of any amounts due as part of an annual reconciliation exercise. Payment will be required within a certain period of time after receipt by the buyer of the seller’s invoice. This could be any number of calendar days or business days, where the latter could be defined in the GSA as days when commercial banks are ordinarily open for business in a particular jurisdiction, or it could be a combination of the two. The buyer will usually seek to secure the longest possible payment terms when negotiating the GSA, in order to preserve liquidity. Longer credit terms worsen the seller’s overall project economics and could require to be made up elsewhere in the GSA, possibly even through a change in the contract price (13-001). Payment will be made by the buyer into a bank account nominated by the seller. This could be the seller’s own account or, where the costs of construction of the seller’s gas production and/or transportation infrastructure have been financed with the assistance of third party lenders (5-013), the seller’s lenders may require the appointment of an independent trustee under the terms of a form of trustee and paying agency arrangement to receive the buyer’s payment. The buyer will make its payment to the nominated trust account and the trustee will then disburse the payment proceeds in an agreed order of priority (sometimes called a “payment waterfall” or “waterfall” arrangement) which covers reimbursement of the trustee’s fees, operating expenses for the seller’s facilities and repayment of the lenders’ principal and interest. The seller will usually see no recovery from the payment proceeds (other than operating expenses) until the lenders have recovered their outstanding principal and interest. A GSA should also provide for a bank account to be nominated by the buyer in order to facilitate any payments which might be due from the seller to the buyer. Any banking costs associated with effecting a transfer of funds are usually expressed to be for the account of the payor, as the party making that transfer. As a precursor to the effectiveness of a GSA the seller and the buyer could perform a number of background verification checks in respect of each other, including various know your client and money laundering assessments. Thereafter the seller and the buyer would ordinarily only deal with each other in the exchange of money under the GSA, namely: that the seller will only invoice the buyer and not any third party in respect of gas delivered; that the seller will receive payments only from the buyer and not from any third party in respect of gas delivered; that the buyer will make payments only to the seller and not any third party; and that payments either way will only be made to the nominated bank accounts of the parties. That said, several exceptions to this principle could be applied under the GSA: the sale of gas to a third party during periods of seller suspension (see below) or force majeure suspension (35-004) will lead to the seller invoicing and receiving payment from a third party; where third party finance has been procured the buyer will pay against the seller’s invoices but into a nominated third party lenders’ account (see above); and where the GSA applies a step-in right (15-006) a new invoicing and payment relationship could be created. End of Document

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Set-Off, UKBC-GASLNGS 493298671 (2023)

Set-Off Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment Set-Off 20-008 The customary flow of funds under a GSA is from the buyer to the seller, in recognition of the supply of gas (and the provision of the gas delivery service) by the seller to the buyer, and the invoicing and payment provisions in a GSA are typically drafted to reinforce the uninterrupted application of this principle in the seller’s favour. Nevertheless, there are several situations where an amount may be due for payment from the seller to the buyer under a GSA. Examples of this are where the seller has cash liabilities for a seller’s delivery failure (19-002), where an amount is found to be due for repayment to the buyer in consequence of the annual reconciliation exercise (see above), where the seller is required to pay late start liquidated damages (36-009) or cash-out payments in respect of accrued and undischarged shortfall (19-008) or make up (17-002) entitlements, where an amount due for payment which has been disputed by the buyer and paid to the seller pending the determination of the dispute is repayable to the buyer (see below), where an award made against the seller under the GSA’s dispute resolution mechanism has been made in favour of the buyer and an amount is due for payment by the seller, or where through the operation of any of the shortfall, undertake gas or overtake gas reclassification mechanisms (as appropriate) an amount is found to be due by way of reimbursement from the seller to the buyer. Under a right of set-off the payor, as the party which is due to make payment to the payee, is able to deduct from that payment an amount which is otherwise due for payment from the payee to the payor, such that the amount which is payable by the payor to the payee will be paid net of the amount so deducted. The right of set-off applies principally in the context of commercial contracts where debts are due and owing between contracting parties, but it is also relevant to the relationship between a guarantor and a beneficiary in the context of a guarantee (15-006). A distinction to note, which is perhaps more apparent than real, is that which exists between set-off and netting. Netting is the process by which payments passing both ways between the parties to a contract (or possibly even a series of linked contracts) are cleared and offset between the parties as they go along, so that at any one time the parties can take a snapshot of the net amount due and owing from one party to the other. Netting is effectively a continuous process of set-off, and it is useful in reducing the overall credit exposure of the parties to each other. The AIEN LNG MSPA (6-002) provides for the possibility of netting across the various confirmation notices issues under the MSPA. Where gas is traded on a non-physical basis between the parties (6-012) there could also be set-off by netting between the parties where they have both been buying and selling gas from and to each other. 20-009 In the interests of preserving the integrity of the intended cash flow under a GSA the seller would ideally prefer the buyer to make payments of all amounts which are due in full and without the deduction or set-off of any amounts which might otherwise be due from the seller to the buyer. Consequently any right of set-off could be expressly excluded in the GSA. Any third party lenders to the seller in the financing of the seller’s gas production and/or transportation infrastructure (5-013) would also support this principle of cash flow protection. If any amount is due for payment by the seller to the buyer then (says the seller) the buyer must issue a separate invoice for payment by the seller and a separate payment obligation will apply in respect of the seller and its liability to the buyer. The buyer, on the other hand, could be nervous of relying on the seller to pay an invoice since this is not the customary course of payment and the seller could be slow to do so. Furthermore the buyer might, despite the seller’s sound operational credentials, have concerns over the liquidity or the creditworthiness of the seller, which might not have procured collateral support in respect of its obligations under the GSA (15-004). For these reasons the buyer could require an express right to set-off, against payments

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Set-Off, UKBC-GASLNGS 493298671 (2023)

due to the seller under the GSA, any amounts which are due from the seller to the buyer, on the basis that this would in practical terms be the simplest and most effective means of recovering those amounts. Under English law a right of set-off is an equitable right which applies to amounts due and payable under the same or a closely connected transaction in situations where there is no applicable legal right of set-off, whether arising out of statute or through specifically agreed contractual rights. This equitable right of set-off can only be disapplied in a contract by clear and unequivocal wording. As an alternative to the implication of an equitable right of set-off the parties might prefer to agree specific terms relating to set-off in the GSA. Such a contractual right could be applied to manage and limit the equitable right of set-off and to extend the set-off principle to certain situations where an equitable right of set-off would not otherwise apply, for example to transactions not regarded as being closely connected or to claims for amounts due at different times (and in respect of contingent and unascertained amounts) and/or in different currencies. 20-010 For a useful illustration of how a set-off right was recorded as operating in practice see Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp (No.1). 3 Sinochem had entered into a contract to sell a consignment of crude oil to Mobil, under the terms of which approximately US $10.6 million was payable by Mobil. In the event Mobil paid only US$2.4 million to Sinochem, leaving the balance of US$8.2 million unpaid. Mobil referred to a set-off provision in its contract with Sinochem as a defence to a claim made by Sinochem in respect of Mobil’s non-payment, and also referred the court to three separate contracts which had been entered into some nine months earlier between a Mobil affiliate and a Sinochem affiliate, under which significant sums remained unpaid by the Sinochem affiliate. In the Court of Appeal the majority view was that the validity of the clause, and Mobil’s application of a set-off right under it, should be upheld, although the quality of the drafting of the clause was criticised. 4 A compromise which is sometimes adopted for managing the competing aspirations of the seller and the buyer under a GSA in relation to set-off is a contractual right whereby the buyer will have the right to set-off against invoices submitted by the seller certain defined amounts which are agreed by the seller or which are declared to be due for payment by the seller to the buyer but which have not been paid by the seller within an agreed period of time after a demand for payment has been made by the buyer. Thus, the set-off mechanism applies in the buyer’s favour but as a secondary, rather than as a primary, payment recovery method. A set-off mechanism might additionally provide that there is only a limited percentage of each invoice against which a set-off can be made, in the interests of preserving a minimum level of cash flow to the seller. This compromise gives comfort to the buyer that a right of set-off exists in the circumstances where it is most likely to be needed and gives comfort to the seller that the operation of such a right is closely controlled. The application of the shortfall price discount under a GSA (19-008) is a form of set-off by the seller against the amount which would otherwise be due for payment by the buyer as expected future gas sales revenues, as is a run-off of accrued make up rights by the seller by offset against the contract price (17-005). Thus, a blanket exclusion of all set-off rights under the GSA should be careful not to eliminate these set-off rights inadvertently and should be qualified accordingly. 20-011

The above principles relate to set-off between the parties in respect of contracts within the same overall gas commercialisation project but set-off could also apply between the parties across multiple projects, if this is what they want to agree. Such a crossproject set-off right is effectively a form of master netting arrangement between the relevant parties. The AIEN GSA (6-002) applies an inbuilt set-off mechanism in its invoicing provisions for amounts due between the seller and the buyer. The seller prepares and sends to the buyer a monthly statement which recites the gas quantities, applicable prices and receivables between the parties for the preceding month, resulting in a summary of the net amount due for that month. If that net monthly amount is a positive number then the buyer pays the seller, and if it is a negative amount then the seller pays the buyer. This mechanism applies on a monthly retrospective basis and also on an annual basis (where the annualised figures should reconcile themselves to the monthly figures which have been aggregated to give the annual position). The AIEN GSA also makes clear that, despite this offset of amounts payable between the parties, payments which are due to be made between the parties will then be made without any further set-off.

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Set-Off, UKBC-GASLNGS 493298671 (2023)

Footnotes 3 4

Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp (No.1) [2000] 1 All E.R. (Comm) 474; [2000] 1 Lloyd’s Rep. 339 CA. Mance LJ described it as “no model of draftsmanship”.

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Payment Failure, UKBC-GASLNGS 493298675 (2023)

Payment Failure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment Payment Failure 20-012 The non-payment by the payor of an invoice could result from short term illiquidity affecting the payor, from a more permanent deterioration of the payor’s creditworthiness, or from a deliberate decision of the payor not to pay. In practice the risk of persistent late payment by the payor is usually greater than the risk of an outright and continuing failure of the payor to pay an invoice. There are several options for the seller (as payee) to protect itself against the risk of non-payment by the buyer (as payor). To cover short-term illiquidity a seller could require more frequent invoicing of and payment by the buyer for gas deliveries, for the buyer to prepay for gas rather than to pay in arrears for gas or for the buyer to fund and to continue to fund a rolling deposit account which would contain for example an average of three months’ worth of gas sales proceeds against which the seller can draw down if the buyer misses a payment. 20-013 A GSA should require the payor to make payment in full against an invoice submitted by the payee, otherwise the payor could make a small part payment of an invoice and so seek to disapply the payee’s remedies for non-payment. The failure of the payor to make payment against an invoice when due (in whole or in part), except where such failure to make payment has arisen in consequence of the right, if any, of the payor to make a set-off (see above) or where the payor is disputing the amount payable and has a right to withhold payment (see below), usually entitles the payee to exercise several remedies under the GSA. These remedies should be expressed to be capable of application independently of each other: (i) Interest charges. The payee could be entitled to charge interest on late payments, at a rate specified in the GSA. The rate of this default interest due on payment failure should be set at a level which is sufficiently high to compensate the payee for the payor’s failure to pay and to discourage the payor from using non-payment under the GSA as a revenue-generating exercise by depositing the required payments in an account which earns interest at a rate greater than the payment default interest rate under the GSA. On the other hand, the payee should resist the temptation to insert an unconscionably high rate of interest in the GSA on the basis that such a rate could be declared unenforceable, (depending on the governing law of the GSA (41-013). The interest rate could be set as an absolute percentage number in the GSA, or it could be determined by reference to a published bank rate. The London Interbank Offer Rate (LIBOR) was widely used as a reference rate, but at the end of 2021 LIBOR was abolished. This will require the parties to contracts (prospective and already in existence) to agree a suitable replacement reference rate. (ii) Action for recovery. The payee could sue the payor for the debt, for which a reserved right to make an expedited application to an arbitral tribunal or to a competent court could be helpful, or could enforce any collateral commitments which have been provided in support of the payor’s obligations under the GSA (15-001). (iii) Suspension and termination. The payee could be entitled to suspend the continuing performance of its obligations, and possibly even to terminate the GSA (39-005) for a continuing failure of the payor to make payment when due. As a condition of doing so the rights of

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Payment Failure, UKBC-GASLNGS 493298675 (2023)

the payee to so suspend and/or to terminate might only be exercisable where the amounts due from the payor exceed a certain threshold to prevent those rights from being exercisable by the payee in respect of de minimis amounts, although the payee might be concerned that the payor could effectively use this threshold as an ongoing overdraft facility. The act of suspension by the payee might also cause an acceleration of all amounts then prospectively due from the payor (e.g. for gas already sold in respect of which an invoice has been rendered but has not yet become due and payable). A GSA could contain a right of the seller to sell gas to a third party for the duration of the suspensory event. This is akin to the rights which might apply during a force majeure event (35-001), except that the duration of the suspension for a non-payment event could be harder to predict and consequently could be less reliable as the basis for making alternative arrangements. Since the predominant direction for payment under a GSA is from the buyer to the seller then the seller will be reluctant to give the buyer a reciprocal right to suspend the performance of its obligations, and especially to terminate the GSA, for a continuing failure of the seller to make payment when due, since this should be an exceptional event. Suspending the delivery of gas or even terminating the GSA will often be too impractical a step for a seller to realistically contemplate in practice, but at least reserving the sanction in the GSA is prudent. A buyer wishing to escape the long-term relationship of the GSA could in theory refuse to make a payment when due, in the hope or expectation that the seller would terminate the GSA and so enable the buyer to seek new arrangements for the sale and purchase of gas. The seller might, however, prefer to affirm the continuing existence of the GSA and to take separate steps for the recovery of the outstanding debt, although the existence in the GSA of provision for the payment of a termination payment (39-007) might make the termination option more attractive. (iv) Retention of title. A seller might consider imposing a retention of title clause in a GSA, such that the seller is able to retain title to the gas which it is selling after physical delivery to the buyer pending eventual payment for that gas. The interest of the buyer under a contract for the sale of goods which is subject to a retention of title clause is effectively that of a bailee under contract of bailment. Such a clause is sometimes also known as a Romalpa clause, in recognition of the decision of the English court 5 regarding such provisions which first brought them to prominence. To make effective sense of a simple retention of title clause a GSA should recite the necessary administrative provisions relating to the identification and segregation of the seller’s gas. Some retention of the clauses (sometimes called “all-monies” or “all-accounts” clauses) go so far as to say that title to goods sold under a contract will not pass from a seller to a buyer until all sums owing by the buyer to the seller, including sums due under any other contract or in any other capacity, have been paid. Such a provision applies the retention of title protection from a particular contract to the much wider commercial relationship between a seller and a buyer. A retention of title clause could be particularly useful in response to the insolvency of the buyer if the seller can recover the gas (since the gas belongs to the seller in priority to other creditors of the buyer) rather than have to prove in the insolvency for the amounts due for payment to the seller together with the other creditors. Whether a retention of title clause might work as described above in respect of the sale of gas is debatable. Gas which is sold under a GSA is typically consumed by the buyer or is resold by the buyer for further consumption by an end-user, without segregated post-delivery storage, and there is some doubt 6 as to whether a retention of title clause would operate in favour of the seller in respect of the materials resulting from the consumption of the gas or the resultant resale proceeds which the buyer receives.

Footnotes 5 6

Aluminium Industrie Vaassen BV v Romalpa Aluminium [1976] 1 W.L.R. 676; [1976] 2 All E.R. 552. Chitty on Contracts, para.46-178, 34th edn (London: Sweet & Maxwell, 2021).

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Disputed Amounts, UKBC-GASLNGS 493298670 (2023)

Disputed Amounts Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment Disputed Amounts 20-014 There is always the possibility that a payor may wish to dispute all or part of any amount which a payee claims in an invoice to be due for payment. In the event of a bona fide dispute, a phrase which is often recited and rarely defined in a GSA, which might be subject to some limits of time in which a dispute must be notified by the payor, one solution is that the payor will pay the undisputed portion (if any) of the total amount due to the payee as usual and the disputed portion will be paid into a third party (preferably interest-bearing) account, to be held pending the determination of the dispute by whatever method of dispute resolution the GSA provides for (Ch.40). When the dispute is resolved the disputed amount will be released to the payee or returned to the payor as appropriate, together with any interest earned on that amount. The rate of interest here could be lower than the rate of default interest (see above), reflective of the more justifiable circumstances of non-payment. Because the payor still has to make payment of the disputed amount (albeit into a third party account) there should be no incentive for the payor to raise disputes in order to evade its obligation to make payment. Equally the payor should be comforted that the payee does not get the disputed amount whilst such amount is held in the third party account. In the course of negotiation of the invoicing and payment arrangements in a GSA the payee may require that all disputed amounts are paid in full to the payee, and this will typically be the payee’s starting point in a negotiation, and the payor conversely may require the right to withhold the payment of all invoiced amounts pending determination of the dispute. Either of these options may be acceptable but the mechanism of a third party account for disputed amounts is often regarded as a workable compromise. Provision in the GSA that the payor will be relieved from the payment obligation to the extent that it relates to an obvious (manifest) error (which is typically also not defined) will also be helpful in reducing the need for withholding a disputed payment. 20-015 The payee might also require that a defined minimum level of payment is made by the payor in respect of any disputed payment, with the balance of the disputed amount being paid into the disputed payments account, in order to cover the payee’s basic operational expenses (and also any third party lender financing costs—5-013). Despite the likelihood that the buyer under a GSA will predominantly be the party wishing to dispute an amount due for payment, the provisions of the GSA relating to disputed payments will usually be written to apply equally to both parties since the seller might also wish to dispute an amount which may be claimed as due for payment to the buyer. The GSA might also provide that the parties will be required to preserve any invoicing documentation for a specified period of time so that the accuracy of past invoicing and payment can be verified subsequently and adjustments made where necessary. End of Document

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Currency of Payment, UKBC-GASLNGS 493298676 (2023)

Currency of Payment Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 20 - Invoicing and Payment Currency of Payment 20-016 Where payment is due to be made to a payee under the GSA in a currency which is different to the currency in which the payee is having to repay any loans which it has undertaken in order to finance the development of its gas production and/or transportation infrastructure (5-013) or in which the payee is required to pay any operational expenditures, then the payee should take steps to ensure that it is not exposed to currency mismatch and fluctuations which could leave it with insufficient currency to repay those loans or to meet those expenditures (e.g. through an appropriate form of hedging instrument). The payee might also require a grossing up provision in the GSA, to operate to the effect that if currency control provisions are introduced which oblige the payor to make payment in a currency other than that which was originally envisaged by the GSA, or if a form of withholding tax is applied to the payor’s payment, then the payor will make such additional payments as may be necessary to ensure that the payee, after it has converted the payment from the received currency to the required currency or after the necessary withholding has been made, recovers the originally envisaged amount. This will insulate the payee from the risk of deficiencies caused by currency mismatch or the tax withholding. End of Document

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Introduction, UKBC-GASLNGS 493298677 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 21 - Gas Quality Specification Introduction 21-001 This chapter addresses the provisions relating to gas quality specifications in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-041, although there will be some overlap between the two. A GSA will contain provisions relating to the quality specification of the gas which the seller is required to deliver to the buyer at the delivery point. The GSA will also contain provisions to deal with the situation where gas which is to be, which is being, or which has been delivered at the delivery point fails to meet the requisite quality specification. These provisions relate to the liability of the party responsible for delivering off-specification gas, the remedy of the party receiving the off-specification gas and how off-specification gas events are to be managed between the parties. End of Document

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The Gas Quality Specification in the GSA, UKBC-GASLNGS 493298679 (2023)

The Gas Quality Specification in the GSA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 21 - Gas Quality Specification The Gas Quality Specification in the GSA 21-002 A GSA will recite a specification for the quality of the gas to be delivered by the seller to the buyer at the delivery point (11-002). Gas which meets all of the quality specification requirements is sometimes described as “sales gas”. This quality specification is usually appended to the GSA as a schedule. The quality specification provisions in the GSA will address the required chemical composition, calorific value and temperature of the gas and several items are worthy of particular explanation. The application of these components within a GSA will also depend on whether raw gas (1-002) or regas (1-004) is being sold and delivered: (i) Chemical composition. The quality specification will recite maximum permissible levels for impurities (e.g. carbon dioxide, sulphur compounds, oxygen and water, expressed for example in parts per million (ppm) by volume). A minimum methane content might be prescribed but this might be left unsaid and determined instead from the specified calorific value of the gas to be delivered. (ii) Calorific value. The quality specification will recite the required calorific value (1-007) of the gas, and whether that calorific value is determined gross or net. The required calorific value more usually appears in the GSA as a range with a minimum and a maximum permissible level, rather than as an absolute figure. (iii) Temperature and dewpoint. The quality specification will specify a required minimum and maximum delivery temperature for the gas. The dewpoint is the temperature at which a gas will cool sufficiently to condense into a liquid. The condensation of a gas stream is undesirable because of the risks of corrosion to metals, freezing liquids which can obstruct the flow of gas and adverse effects upon measurement equipment. Consequently the quality specification will typically specify the required dewpoint threshold, below which the temperature of the gas at the point of delivery should not fall. Since gas will condense into a liquid hydrocarbon, and any water vapour in the gas will condense into water, at different temperatures the quality specification might further distinguish between water and hydrocarbon dewpoints. (iv) Wobbe Index. Expressed for example in British thermal units per standard cubic foot (Btu/scf), the Wobbe Index is an expression of the calorific value of a gas flame at the point of combustion and is relevant to ensuring that gas when combusted will be compatible with the equipment within which that gas is combusted (e.g. a burner tip). A greater Wobbe Index of a particular quantity of gas indicates a greater calorific value. The Wobbe Index allows the comparison of the combustion energy output of different gas streams, and will usually be recited as a range with a minimum and a maximum permissible level. The Wobbe Index is derived by dividing the gross calorific value of the gas (at standard temperature and pressure) by the square root of the gas’s specific gravity. (v) Specific gravity.

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The Gas Quality Specification in the GSA, UKBC-GASLNGS 493298679 (2023)

Also described as relative density, this is the measure of the density of a substance relative to the density of a reference point substance. Thus, relative to air (which has a specific gravity of 1.00), methane is lighter than air (with a specific gravity of 0.55) and propane and butane are heavier than air (with a specific gravity of 1.52 and 2.00 respectively). (vi) Objectionable materials. Notwithstanding a tightly drawn quality specification, some buyers might also insist on the inclusion in the quality specification of a catch-all provision to the effect that gas at the point of its delivery will be free (sometimes also described as “commercially free”) from certain forms of objectionable materials. A seller should resist this formulation, which is broad and difficult to quantify and could be prone to later dispute. 21-003 As a starting point for determining a mutually acceptable quality specification in the GSA the composition of gas will be determined by the source of supply of that gas: (i) Raw gas delivered from the seller’s gas reservoirs. It could be that gas is delivered directly to the buyer in the same physical condition that it leaves the seller’s gas reservoirs. The quality specification would therefore reflect the nature of this raw gas. Prior to the point of delivery to the buyer, however, the gas could be treated by the seller (possibly at the buyer’s expense, to be reflected in a higher contract price —13-001) in order to remove impurities, to strip liquids or to modify the calorific value. (ii) Regas. Where the buyer is receiving regas then a more refined quality specification should be acceptable to the seller, since the gas liquefaction process (30-001) will have removed many of the customary impurities from the raw gas stream. (iii) Gas from substitution sources. Where gas is delivered for the purposes of the GSA from alternative sources (e.g. because of an alternative supply arrangement which the seller has configured) then that gas will also need to match the quality specification in the GSA. The seller would prefer a widely drawn quality specification in order to maximise the deliverable quantities of gas and to minimise the possibility of a liability for delivering off-specification gas (see below). The buyer, on the other hand, will require a quality specification which is consistent with the commercial requirements of the buyer or any end-users to which the buyer is reselling gas (e.g. gas within a specified calorific value range where that gas is required as a feedstock for power generation, or gas which is rich in the heavier hydrocarbon fractions where that gas is required as a feedstock for petrochemical production (1-012)). This is particularly so for LNG, where regasification facilities could operate within certain thermal value limitations. The freedom of the parties to negotiate the quality specification under the GSA could be limited where the gas is to be transported to the delivery point through a multi-shipper pipeline (25-020), since the pipeline operating regime which is set out in the pipeline system rules (25-023) will typically import a prescribed quality specification for application to all quantities of gas using the pipeline. End of Document

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Pipeline Gas Pressure, UKBC-GASLNGS 493298678 (2023)

Pipeline Gas Pressure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 21 - Gas Quality Specification Pipeline Gas Pressure 21-004 Gas in a pipeline is under pressure and will always naturally flow from a higher to a lower pressure differential. A gas pipeline will have a defined range of safe pipeline operating pressures, beyond which the pressure of gas in the pipeline cannot be allowed to rise or fall. The transporter will maintain any shippers’ linepack accounts (28-008) such that this pipeline operating pressure regime is maintained. In the GSA the seller and the buyer will each need to maintain the pressure of gas in their respective facilities upstream and downstream of the delivery point, such that gas will be able to transit into the pipeline at the input point and also into the buyer’s gas reception facilities at the output point. The GSA usually therefore specifies (in the quality specification provisions or separately) the gas pressure maintenance obligations for both parties. There will usually be a shortfall exception for gas which the seller is unable to deliver because of the buyer’s acts or omissions (19-004) and this should cover the situation where the buyer maintains too high a level of pressure within the pipeline or within its gas reception facilities in contravention of the requirements of the GSA. That said, the seller’s delivery obligation (11-007) could be satisfied by making gas available to the buyer at the delivery point and should not require that the gas actually has to transition into the buyer’s facilities. End of Document

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Off-specification Gas, UKBC-GASLNGS 493298680 (2023)

Off-specification Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 21 - Gas Quality Specification Off-specification Gas 21-005 The quality of gas which is delivered by the seller to the buyer will be analysed at the delivery point in order to determine whether that gas meets the GSA’s quality specification. The GSA will set out a regime to determine the rights and the obligations of the buyer and the liabilities and the obligations of the seller where gas fails, is anticipated to fail, or has failed to meet the quality specification. This regime should apply whether the buyer is obliged to pay for gas or is taking make up (17-002) but might not apply to gas supplied during a commissioning period (23-006). Off-specification gas could be only technically so, and otherwise capable of commercially usage by the buyer or the buyer’s end-users (6-010), or could be capable of remediation to an on-specification condition by some form of processing, or could be totally unusable by the buyer or the buyer’s end-users. Depending on the nature of the off-specification gas event, such gas could also damage any gas reception, onward transmission or consumption facilities. The damage to facilities could be instant or it could accrue gradually over a period of time. The seller could know ahead of the delivery of gas to the buyer at the delivery point that gas is or may be off-specification. Alternatively the buyer might have knowledge that gas at the delivery point is or may be off-specification before the seller has such knowledge. In either circumstance the customary premise is that the party having such knowledge will promptly impart that knowledge to the other party, such that both parties are in a position to make meaningful, informed decisions regarding the impending off-specification gas event. The GSA usually also obliges the seller to take steps, usually to the standard of a reasonable and prudent operator (41-023) or using reasonable endeavours (41-020) to remedy the off-specification gas event (which could be done by processing the off-specification gas). 21-006 The determination of whether a particular quantity of gas is off-specification at the delivery point will typically be made by reference to the condition of that quantity of gas but some GSAs are concerned to address the situation of the delivery of gas in a commingled stream (27-002). To prevent arguments between the buyer and the seller over whether the delivered gas was off-specification but the commingled stream was not, or vice versa, and so what the outcome should be between the parties, the GSA could contain a deeming provision whereby if the commingled stream as a whole is found to be off-specification at the delivery point then the particular quantity of gas will be deemed to be off-specification, and if the commingled stream as a whole is found not to be off-specification at the delivery point then the particular quantity of gas will be deemed not to be offspecification, regardless of the suggested condition of the particular quantity of gas. A GSA could contain a formulation whereby the seller assumes no responsibility to the buyer for any off-specification gas which is delivered at the delivery point, whether that gas is knowingly or unknowingly delivered as off-specification gas by the seller. This could apply during a commissioning period or could apply through the entirety of the GSA if that is what the parties have agreed (which could, says the seller, be the consequence of a low contract price (13-001)). In such a situation the buyer could install gas processing equipment at the delivery point, and should fully insure its own facilities and business against the risks of receipt of off-specification gas. Such a contractual construction is also consistent with an absolute mutual hold harmless liability allocation model (36-002), since the attribution of liability to the seller for off-specification gas deliveries introduces a fault-based element into that model. 21-007

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Off-specification Gas, UKBC-GASLNGS 493298680 (2023)

Where there are to be some buyer’s remedies and seller’s liabilities in the GSA in respect of off-specification gas deliveries, there are three factual circumstances to consider in relation to the actual or prospective delivery of off-specification gas by the seller: (i) Knowingly taking delivery. Where a quantity of gas is known to be off-specification prior to the point of delivery to the buyer and the buyer, nevertheless, knowingly takes delivery of that off-specification gas. (ii) Refusal to take delivery. Where a quantity of gas is known to be off-specification prior to the point of delivery to the buyer and the buyer rejects and refuses to take delivery of that off-specification gas. (iii) Unknowingly taking delivery. Where the buyer has taken delivery of a quantity of gas without knowing that such gas was off-specification at the time of taking delivery. These circumstances could also apply sequentially in respect of the same gas stream. Off-specification gas could be delivered through a pipeline and unknowingly taken delivery of by a buyer. At that point the parties become aware of the off-specification gas event, whereupon the buyer elects to continue to take delivery of the gas or refuses to take delivery of any more of the gas. This operational sequence represents a significant difference to how off-specification provisions apply in respect of LNG cargoes (32-042). End of Document

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Off-specification Gas Liability, UKBC-GASLNGS 493298682 (2023)

Off-specification Gas Liability Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 21 - Gas Quality Specification Off-specification Gas Liability 21-008 The typical range of the liabilities of the seller and the remedies to the buyer, assuming that the seller is prepared to undertake any form of liability under the GSA for off-specification gas, in each of the above circumstances is as follows: (i) Knowingly taking delivery. In this instance the parties know the gas is off-specification and the buyer elects to take delivery of the gas anyway. The seller will argue that this constitutes a valid delivery of gas and that consequently the buyer should have no remedy—the off-specification gas must be paid for in the ordinary course of events and there should be no concession in favour of the buyer. This is particularly so if the gas was only marginally off-specification and was otherwise readily usable by the buyer or the buyer’s end-users, which explains the buyer’s decision to take delivery of the off-specification gas. The buyer may argue, however, that it should be offered a price discount and/or the comfort of an indemnity against loss or damage caused by such off-specification gas, as an incentive to take delivery of such gas and not to reject it. Any indemnity which is given by the seller could be capped by reference to a defined monetary account. If the buyer is a shipper and has a capped liability to indemnify the transporter under a GTA then that cap could work through to similarly benefit the seller. What constitutes knowledge, for the knowingly taking delivery, on the part of the buyer might also be debated. The usual provision is that only actual knowledge will suffice and that imputed or constructive knowledge (i.e. where the buyer ought reasonably to have known that the gas is or could be off-specification) should not be taken to constitute knowledge by the buyer. Not all of the quantity analysis will take place at the delivery point, since there may be some instances where gas samples are sent away for further laboratory analysis. This will have a bearing on when knowledge of an off-specification gas event can be said to have first arisen. The ability of the buyer to reject off-specification gas prior to the point of delivery will depend on the extent to which the buyer has adequate information to enable an informed decision to be made. This is more likely where, for example, the buyer has real-time telemetric access to the readings from the measurement equipment but where this is not so, or where certain gas quality components can only be established by subsequent laboratory analysis, then the buyer will be keen to establish a more meaningful remedy for its unknowing acceptance of off-specification gas (see below), since this might be the more likely scenario. (ii) Refusal to take delivery. In this instance the parties know the gas is off-specification and the buyer elects to reject the prospective (or the ongoing) delivery of that gas. The seller will usually require the buyer to take delivery of off-specification gas which is or which may be delivered by the seller where it is reasonable for the buyer to do so (e.g. because the extent to which the gas is off-specification is marginal), but beyond that the buyer would have the right to reject and refuse to take delivery of offspecification gas. In the GSA there could be an attempt to define the commercial and/or operational circumstances in which it would be reasonable for the buyer to refuse to take delivery of off-specification gas (e.g. where taking delivery of such gas might cause damage to facilities, might lead to unacceptable commercial disruptions or might cause death or personal injury). Typically however the buyer will require an absolute right to refuse to take delivery of any quantity of off-specification gas, in order to preserve its position to the greatest possible extent. Where under the GSA the buyer has an election right over whether or not to take delivery of off-specification gas and elects to do so, but that gas causes some

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Off-specification Gas Liability, UKBC-GASLNGS 493298682 (2023)

loss of or damage to the buyer’s facilities, then the buyer should ensure that this election of the buyer does not vitiate any policy of insurance which the buyer might have effected in respect of its facilities (41-015). Where the buyer does refuse to take delivery of a quantity of off-specification gas the situation is in principle similar to that of a seller’s delivery failure and the debate about the components of the applicable remedy for shortfall (19-002) will apply equally. The GSA should also make it clear that a refusal of the buyer to take delivery of off-specification gas should not trigger an allegation of undertake (18-010) by the buyer. As a further alternative, the GSA could give the seller a right to suspend gas deliveries where the seller is concerned on safety grounds about the possible impact of an off-specification gas event, in order to mitigate the possible future risks. Such a right could create an exception to shortfall in the seller’s favour (19-004), in order that the seller is not placed in the difficult position of weighing up competing commercial and safety concerns. (iii) Unknowingly taking delivery. In this instance the buyer has unknowingly taken delivery of off-specification gas, and the off-specification nature of the gas has only come to light once that gas has passed from the seller’s facilities to the buyer’s facilities. This could occur, for example, where the seller’s measurement equipment was not functioning properly and failed to detect that gas was off-specification at the point of delivery to the buyer or where the seller’s awareness that the gas was off-specification came too late to enable the seller to advise the buyer in advance of the taking of delivery of such gas by the buyer. The buyer could argue that it should not be expected to pay for the quantity of gas which it has inadvertently taken delivery of. The seller might argue, however, that the buyer should still pay if the buyer was able to utilise that off-specification gas in the ordinary course of its business. The seller could also be obliged to indemnify the buyer in respect of the costs of cleaning up the buyer’s facilities (and possibly any end-user or third party facilities for which the buyer is liable) and/ or in respect of any death or injuries or other third party claims for which the buyer is liable in consequence of the buyer’s unknowingly taking delivery of the off-specification gas (subject to any possible caps on that indemnity liability). Such an indemnity obligation should be reconciled with any provisions in the GSA which purport to limit a party’s liability for consequential losses (36-008). Where the buyer is informed that gas to be delivered is off-specification but nevertheless elects to take delivery of that gas, and subsequently it becomes apparent that the off-specification event is different in nature to that which was originally envisaged, then the provisions set out above in respect of acceptance, rejection and unknowing acceptance should apply afresh to the newlycharacterised off-specification gas event. End of Document

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Other Off-specification Gas Issues, UKBC-GASLNGS 493298681 (2023)

Other Off-specification Gas Issues Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 21 - Gas Quality Specification Other Off-specification Gas Issues 21-009 Several other issues typically need to be considered in connection with the actual or prospective delivery of off-specification gas under the GSA: (i) Off-specification gas and shortfall. The GSA should make it clear that the buyer cannot recover twice in respect of a quantity of gas which has been rejected by the buyer and treated as a seller’s delivery failure (e.g. by recovering under the seller’s delivery failure regime and under the off-specification gas regime). Where the seller partially fails to deliver gas to the buyer, and whatever quantity of gas the seller is able to deliver is off-specification gas, then the off-specification gas remedies in the GSA should apply on their own terms to the quantity of off-specification gas which was or would be delivered. Where the quality specification in the GSA refers to the calorific value of gas to be delivered and the seller delivers a quantity of gas against the buyer’s nomination for calorific values of gas which is short of the nominated quantity then it is possible that the seller could be simultaneously liable for a seller’s delivery failure and for the delivery of off-specification gas. To prevent double-counting the GSA should specify whether that will constitute a seller’s delivery failure or the delivery of off-specification gas and so which remedy will apply in the buyer’s favour. (ii) The transporter’s liability for off-specification gas. Where the seller is delivering gas to the buyer as part of a commingled gas stream then the seller may be able to pass through the liability which it might have to the buyer for delivering off-specification gas to another supplier of gas within that commingled stream, or the seller may be able to pass the liability through to the transporter under the GTA. The buyer will not, however, wish to be engaged in the forensics of determining liability between different gas suppliers or the transporter and will look solely to the liability of the seller under the GSA. (iii) Off-specification gas and force majeure relief. The seller could secure force majeure relief (35-001) in respect of the liabilities which might otherwise apply in respect of the delivery of off-specification gas (e.g. such as relief from the obligation to compensate the buyer at all, or in respect of damage caused or clean-up costs) but the buyer may require, however, that the seller’s liabilities in respect of the delivery of off-specification gas are strict and will not be disapplied through a claim by the seller for force majeure relief. (iv) Managing off-specification gas. The parties will need to address what physically happens at the delivery point to off-specification gas which the buyer refuses to take delivery of upstream of the delivery point (e.g. whether the seller can flare or vent that gas). Consideration also needs to be given to the situation where residual quantities of off-specification gas are in the buyer’s facilities downstream of the delivery point and may need to be purged from those facilities prior to the resumption of gas deliveries. (v) Warranty and representation.

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Other Off-specification Gas Issues, UKBC-GASLNGS 493298681 (2023)

The GSA should not create or infer the giving of a warranty and representation (41-030) by the seller in respect of the quality specification. This could create an additional layer of liability for the seller in respect of an off-specification gas event, beyond the liability which has been specifically provided for in the GSA. End of Document

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Introduction, UKBC-GASLNGS 493298683 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 22 - Measurement Introduction 22-001 This chapter addresses the provisions relating to the measurement of gas quality and quantity in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-045, although there will be some overlap between the two. Measurement is the term applied generically to the determination of the quality and quantity of gas but it is more accurate to describe the operational processes as the metering of gas quantity and the analysis of gas composition for quality. Accurate measurement is essential to the parties since this will determine the quality and the quantity of gas delivered, leading to a determination of the amount of payment due from the buyer to the seller, and whether the seller may have any liability to the buyer for a failure to deliver gas or for the delivery of off-specification gas. End of Document

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Gas Measurement, UKBC-GASLNGS 493298685 (2023)

Gas Measurement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 22 - Measurement Gas Measurement 22-002 The metering of the quantity of gas which is delivered by the seller to the buyer at the delivery point (11-002) is typically determined by using orifice metering or ultrasonic metering, each of which will determine the quantity of gas flowing at a particular point over a particular time period. In orifice metering a circular plate with a central hole is inserted into a gas pipeline, at right angles to and in impedance of the flow of gas. The flow is restricted by the reduction in the diameter of the area through which the gas can flow, leading to a pressure drop on the downstream side of the orifice plate from which the quantity of gas which is flowing can be measured. In ultrasonic metering multiple acoustic pulse reflections are used to analyse the flow of gas, from which gas quantities can be determined. The measurement of gas requires a statement of the conditions at which the measurement is being conducted and consequently it is customary to find in a GSA a declaration of the base temperature and pressure conditions (sometimes called the “reference conditions”) which will apply. At the metering point there could be facilities for monitoring temperature and pressure in order to ensure the accuracy of the measurement calculations and the environment in which they are made. 22-003 The analysis of the composition of gas is typically done using a gas chromatograph. A sample of a gas stream is passed through a chromatographic column in conjunction with an inert carrier gas such as helium or argon. Different components of the gas stream will exit the column at different intervals and detectors in the carrier gas stream will record the quantity of each component. The gas chromatograph will determine the overall composition of the gas stream by expressing the amount of each component as a percentage of the overall gas stream, with the sum of the percentages of each component equalling one. A gas chromatograph can be set to operate continuously (described as online chromatography) or by periodic grab sampling, with samples to be sent away for further analysis. The calorific value of gas can also be determined by a gas chromatograph, whereby the proportion and the calorific value of each component in the gas stream will determine the overall calorific value of the gas stream. An item of measurement equipment which is relied upon as the primary determinant of gas quality and quantity readings, particularly for the purpose of invoicing under the GSA, is often described as a “fiscal meter”. End of Document

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Further Measurement Issues, UKBC-GASLNGS 493298684 (2023)

Further Measurement Issues Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 22 - Measurement Further Measurement Issues 22-004 A GSA will recite several further provisions dealing with gas measurement: (i) The measurement point. The GSA will identify a point at which gas will be measured. This is often defined as the delivery point but a more accurate description is the measurement equipment itself at the particular point. (ii) Measurement equipment. The GSA usually makes the seller responsible for the measurement of gas and also gives the seller the corresponding obligation to install, operate and maintain the necessary measurement equipment at the measurement point. (iii) Check meters. A party to the GSA which is not the party responsible for measurement might wish to install a facility for its own corroborative measurement equipment (often called a “check meter”). This might not be feasible in certain operational circumstances, and it might not be necessary where a party otherwise has adequate access and audit information (see below). Where a check meter is installed the usual provision is that the fiscal meter (see above) will still be determinative of gas quantity and quality, for operational and invoicing requirements. The GSA might also provide for a default to reliance on the check meter if there is a problem with the fiscal meter in determining gas quality or quantity. Because of this possibility the GSA might also apply certain of the measurement obligations equally to the check meter. (iv) Access and audit. Where the buyer accepts that the seller will perform the fiscal metering function the buyer will usually require a right of access to attend at any periodic verification of the operational accuracy of the seller’s measurement equipment. Additionally the buyer may require the right to call for verification of the seller’s measurement equipment at any time where the buyer is concerned that such equipment could be operating inaccurately. This right will usually be exercisable upon reasonable notice from the buyer and there may be a limitation upon the number of times in a contract year that the buyer can exercise this right. Where this right exists the GSA usually goes on to provide that the costs associated with exercising the right will be borne by the buyer, except that the costs could be borne by the seller where inaccuracy (beyond a certain tolerance) in the operation of the measurement equipment is proven. The buyer may also require live-time access to the seller’s measurement equipment as part of the audit process, with information being relayed to the buyer by a telemetric link. (v) Third party measurement. As an alternative to having one party perform the measurement function and the other party having rights to install check metering and to attend verification of the measurement equipment, the parties might instead agree to appoint an independent measurement specialist with responsibility for conducting the measurement function on behalf of all parties and for making the measurement data equally available to them all.

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Further Measurement Issues, UKBC-GASLNGS 493298684 (2023)

(vi) Measurement protocols. The GSA will recite standards to which the quantity of gas will be metered and the quality of gas will be analysed. These will usually be objectively published and internationally acceptable standards, which could be the standard in force when the relevant agreement is executed or the standard in force from time to time. 1 The GSA could also provide that the parties will agree to review and revise the standards as necessary if it becomes apparent that they are not providing the greatest possible level of operational efficiency. (vii) Measurement disputes. Disputes between the buyer and the seller under the GSA about gas measurement could be evidenced by differential readings between the fiscal meter and a check meter, or simply by the general refusal of a party to accept the veracity of the measurement equipment in a particular situation. The GSA typically provides that disputes will be determined by recourse to an independent expert (40-004). (viii) Pipeline system rules. The freedom of the parties to negotiate the measurement regime for the GSA could be limited where the gas is to be transported to the delivery point through a multi-shipper pipeline since the pipeline operating regime which is set out in any pipeline system rules (25-023) will typically import a prescribed measurement regime by which the parties to the GTA, and consequently the GSA, will have to abide operationally.

Footnotes 1

Published, for example, by the American Gas Association (AGA), the International Organisation for Standardization (ISO) or the American Petroleum Institute (API).

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Introduction, UKBC-GASLNGS 493298689 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 23 - Facilities and Commissioning Introduction 23-001 This chapter addresses the provisions relating to facilities development and commissioning in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-047, although there will be some overlap between the two. A GSA will require for its effective performance that certain key facilities have been installed, commissioned and have become fully operational, generally by the start date but sometimes later during the basic term, as certain facilities are later phased into operation. This could include the seller’s gas production (and any transportation) facilities and the buyer’s gas reception and consumption or onward transmission facilities. A GSA could contain specific provisions relating to the definition and development of such facilities. A GSA could also make provision for a regime for the commissioning of new facilities, as a precursor to the intended level of full operation of those facilities. End of Document

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The Facilities Obligation, UKBC-GASLNGS 493298691 (2023)

The Facilities Obligation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 23 - Facilities and Commissioning The Facilities Obligation 23-002 Where the seller and the buyer already have established and interconnected facilities for the production, transportation, receipt and consumption of gas then the GSA will simply be an agreement for the sale and transportation of gas and will be unlikely to contain detailed provisions relating to facilities. Where, however, new facilities are required to be built then the GSA (or a separate project development agreement—see below) could contain detailed provisions relating specifically to the design, construction, installation, commissioning, operation and maintenance of those facilities, including the acceptance by the relevant parties of certain initial and ongoing obligations in respect of those facilities. It is often assumed that a facilities obligation applies only to the installation of new facilities at the outset of a greenfield gas commercialisation project but such an obligation could also apply to the repair, replacement or enhancement of already-existing facilities in a brownfield project. The reasoning behind such a facilities obligation is that it imposes upon the party responsible to satisfy it an enforceable contractual commitment to ensure that the facilities which are critical to the performance of the overall gas commercialisation project will be developed, made available and kept in place as necessary for the performance of the GSA. This obligation will help to better ensure the likelihood of success of the project because every necessary element of the project will be complete when it needs to be. On the other hand a party which is requested to undertake a facilities obligation might resist doing so on the grounds that the GSA is simply an agreement for the sale of a commodity. In particular, the seller will argue that under the GSA it has meaningful liabilities for a failure to deliver gas (19-002) and the buyer will argue that it has the take and pay or the take or pay commitment (16-003, 16-004), all of which provide adequate commercial incentives to install and maintain the necessary facilities without the support of a separate facilities obligation. The existence of required facilities could be taken into account in making an assessment of deliverability (11-012), as the provision of facilities necessary to meet the buyer’s rights and interests under a GSA. The matter of deliverability could be the subject of a condition precedent (10-005) or a warranty and representation (41-030). End of Document

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Facilities Obligation Components, UKBC-GASLNGS 493298692 (2023)

Facilities Obligation Components Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 23 - Facilities and Commissioning Facilities Obligation Components 23-003 Where it is agreed that a facilities obligation will be undertaken in a GSA then several components will require consideration: (i) The definition of the facilities. The required facilities should be carefully defined in the GSA rather than defined generally, in order to prevent later disagreement between the parties about whether the facilities obligation has in fact been satisfied by the party required to do so. One means of defining the facilities would be to require the seller to implement those facilities which are necessary to deliver gas to the maximum volumes and rates specified by the GSA, and for the buyer to implement those facilities which are necessary to take delivery of gas to the same extent. This formulation could be open to differences of interpretation, however, and in the interests of greater certainty a more specific definition of the required facilities is preferable. This could be done by definition of the required facilities (for both the buyer and the seller) in detail in a schedule which is appended to the GSA. (ii) Facilities costs. It is usually the case that the costs of facilities will be met by the party requiring, or which is obliged to provide, those facilities. There could, however, be some agreement between the parties as to mutual costs contributions. (iii) Completion of the facilities obligation. A GSA should define the extent of a party’s obligations in respect of the required facilities, including any applicable standards to which the facilities should be built. The timetable for the installation and commissioning of specified facilities should be based on defined interim and/or final dates for the obligations to be completed, such that the right of a party to seek the remedy of specific performance or even to terminate the GSA in respect of the failure of the other party to properly perform the obligations can be better applied. A GSA should also clearly define the test for completion and readiness in respect of specified facilities and how that test is to be satisfied. The readiness of the seller’s facilities will be determined where the seller is able to flow gas at the delivery point which meets the quality specification and which is sufficient in quantity to meet the buyer’s quantity requirements for a defined period of time. The GSA could provide for the joint appointment by the parties of an independent engineer at the outset with responsibility for monitoring the performance of the facilities obligation and determining whether a particular test has been satisfied. The GSA could also provide for periodic reporting obligations between the parties regarding the ongoing development of the facilities, access and inspection rights for the parties to monitor such development and the establishment of a coordination committee, comprised of representatives of the parties (but without prejudice to the rights and the obligations of the parties) which is committed to meeting frequently in order to liaise on the progress of the fulfilment of the various facilities obligations, and in particular on the interconnection of certain facilities. (iv) Uneconomic facilities. A party could be obliged to install and/or to continue to operate certain facilities even where it is not economic to do so, or a party could be entitled to withdraw uneconomic facilities from application to the GSA (in each case, according to a

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Facilities Obligation Components, UKBC-GASLNGS 493298692 (2023)

defined test in the GSA for what economic means—where the definition of what is and is not economic could be geared towards whether the facilities generate a particular level of an economic return for the facility-providing party). (v) Withdrawal of facilities. A party which is subject to a facilities obligation could seek a qualification that the obligation will not apply where it is subsequently realised that the facilities in question would not contribute to the satisfaction of that party’s obligations under the GSA (whether or not the facilities are economic—see above). Consequently the GSA might reserve in favour of a party a right to withdraw such facilities from use, or even not to install them at the outset. Such a provision is intended to protect a party from the expense of performing or continuing to perform obligations in respect of redundant facilities but this could, in the extreme, undermine the very basis of the facilities obligation and could lead to a dispute between the parties as to whether the conditions for the application of such a right have been met. An absolute facilities obligation could also be qualified by a condition that it will be disapplied only after a particular period of time (e.g. only after the end of a plateau period (12-004)), whereupon facilities can be withdrawn, but often only if such a withdrawal would not impair the intended performance of the GSA. (vi) Facilities modification costs. The GSA could set out a suggested allocation between the parties of the incidence of the associated costs of modifying their respective facilities (and the incidence of the costs where modifications made to one set of facilities have a consequential effect on another set of facilities), where the need for such modification is required in order to comply with domestic law or international law. This allocation could be founded, for example, on the principles that: (a)the costs of a modification to a party’s facilities which is required by the domestic law of that party’s country, or which is required by the need to comply with new or changed international standards, will be borne by that party; (b)where the need for consequential modifications to another party’s facilities is thereby occasioned then the costs of those consequential modifications could be borne by the first party (where modification was required by the domestic law of the first party’s country) or could be borne by that other party (where modification is required by the need to comply with new or changed international standards); (c)the necessity for incurring the costs of changes which are required by a regulatory agency because of a party’s poor performance or misbehaviour should be borne by the party which necessitated those changes. This will all be a matter for negotiation in the GSA. This issue of costs allocation is illustrated in particular in relation to LNG import and export facilities and LNG ships at 32-047. (vii) Liability for failure. The usual formulation for the liability of a party for a failure to perform a facilities obligation is that the liabilities will be as they are ordinarily determined by the GSA (e.g. the seller’s liability for a failure to deliver gas (19-002) and the buyer’s exposure to the take and pay or the take or pay commitment 16-003, 16-004) for an inability to take delivery of gas) and the GSA will not create any greater liabilities for a party. If there is agreement between the parties that the facilities obligation should create an additional level of liability between them then the extent of that liability should be determined carefully. The GSA could impose a liquidated damages formulation but care should be taken that this does not inadvertently constitute a penalty (36-009). Care should also be taken with a facilities obligation that does not prescribe a defined liability for default that it does not also inadvertently fail to give an effective limitation of liability—the facilities obligation could set up a collateral undertaking which could, in the extreme case, lead to the possible termination of the GSA on the grounds of an unremedied material breach of contract (39-005). 1 The right of a party to seek specific performance or other equitable relief to compel the performance of a facilities obligation is usually not excluded in a GSA. It might also be argued that a failure of a party to fulfil a facilities obligation is sufficiently inimical to the sustainability of a GSA that the party in whose favour those obligation is required to be performed could be entitled to treat the GSA as having been repudiated. In this situation much will depend upon the criticality of the facilities obligation and the consequences of the failure to perform

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Facilities Obligation Components, UKBC-GASLNGS 493298692 (2023)

it, to be read in light of the prevailing factual circumstances. 2 The GSA might provide therefore that a failure to perform the facilities obligation by a party will not give rise to grounds to rescind or terminate the GSA. (viii) Project development agreement. As an alternative to reciting a facilities obligation in a GSA the parties might enter into a separate, wider project development agreement which will recite all of the various facilities obligations between them. This agreement could be made between all of the relevant parties (such as the parties to the GSA and any facilities construction contractors) in order to ensure that all of the necessary activities for satisfaction of a facilities obligation (and the agreement of any liabilities relating to a breach of that obligation) are fully captured. The liabilities of the parties to each other for a breach of a facilities obligation could be determined by reference to the GSA (see above). The liabilities of the construction contractors will ordinarily be determined under the relevant construction contracts. In neither case would the project development agreement necessarily apply greater levels of liability between the parties thereto, unless that is specifically agreed. (ix) Resolution of disputes. The GSA might provide for the appointment of an independent expert (40-004) to determine disputes relating to the performance of a facilities obligation.

Footnotes 1

2

In Scottish Power UK Plc v BP Exploration Co Ltd [2015] EWHC 2658 (Comm); [2016] 1 All E.R. (Comm) 536 the High Court considered whether, under the terms of a long-term GSA, a shortfall price discount would be the exclusive remedy of the buyer and the exclusive liability of the seller where the seller had allegedly failed to comply with a facilities obligation which had resulted in the non-delivery of gas to the buyer, despite an additional claim for damages at large having been made by the buyer. The High Court found that the agreed shortfall price discount would operate as the sole remedy and liability, and this was upheld in the Court of Appeal (Scottish Power UK Plc v BP Exploration Operating Co Ltd [2016] EWCA Civ 1043). In Amoco (UK) Exploration Co v Teesside Gas Transportation Ltd [2001] UKHL 18; [2001] 1 All E.R. (Comm) 865 it was argued that ship or pay payments due could be withheld where certain necessary gas transportation infrastructure was not fully available when it was required to be.

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Tie-ins and Future Works, UKBC-GASLNGS 493298688 (2023)

Tie-ins and Future Works Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 23 - Facilities and Commissioning Tie-ins and Future Works 23-004 Once the parties to the GSA have agreed that one of them will be responsible for transporting gas through an existing pipeline, and that pipeline does not connect directly to the seller’s gas production facilities and/or to the buyer’s gas reception facilities, then it will be necessary for the construction of a connecting pipeline such that the transportation of gas from the point of production to the eventual delivery point can be fully effected. Such a connecting pipeline could be added to the facilities obligations in the GSA. There will need to be an agreement entered into between the existing pipeline owner and whichever party wishes to tie its connecting pipeline into that existing pipeline. This tie-in agreement, sometimes called a “construction and tie in agreement” (CTIA), which is typically separated from any gas sales or transportation arrangements, will address various factors such as a detailed description of the tie-in works to be performed, which party has the responsibility for performing those works and the liability regime which will apply between the tieing-in party and the existing pipeline owner in the event that loss or damage is caused through the execution of the tie-in works. The costs of the tie-in works will typically be borne by the party requiring the tie-in to be undertaken. The tie-in agreement will also typically recite a timetable for the completion of the works to which it relates. This timetable will need to be corresponded with the anticipated timings for the first flows of gas and for the start of the provision of gas transportation services. The usual liability regime under a tie-in agreement is one whereby the party performing the tie-in works will be obliged to compensate the pipeline owner for any damage or loss caused to the pipeline owner’s interests in consequence of the tie-in works (usually subject to an overall cap on liability). This is effectively a guilty party pays liability allocation model and may be at odds with a mutual hold harmless liability allocation model (36-002) which might otherwise exist between the indemnifying party and the pipeline owner. End of Document

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Provision of Space and Access to Facilities, UKBC-GASLNGS 493298690 (2023)

Provision of Space and Access to Facilities Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 23 - Facilities and Commissioning Provision of Space and Access to Facilities 23-005 It may be that one party will require the permanent provision of space at another party’s site for the installation and operation of its own facilities, such as where the seller wishes to install gas measurement equipment or gas processing equipment at the buyer’s gas reception facilities. Where this is a possibility the parties will need to agree issues such as the size and location of the land area to be made available (and the basis of the land interest), provision for the supply of power and other necessary utilities and shared services and the consideration payable by the party receiving the benefit of such an arrangement. This will typically be agreed in a separate facilities access agreement. A GSA, or a separate facilities access agreement, might also provide for the right of a party to secure access to the other party’s facilities. This right of access might apply, for example, to the following situations: (i) Force majeure events. For a party to verify the occurrence of a physical event or circumstance which has affected another party’s facilities and which has been claimed as a force majeure event (35-001) by that other party. (ii) Seller’s delivery failure. For a buyer to verify the circumstances of a seller’s delivery failure under the GSA (19-002). (iii) Maintenance. For a party to verify that scheduled maintenance (24-002) has been undertaken by the party responsible for doing so. (iv) Measurement. For a party to attend any verification exercise being undertaken by a party responsible for gas measurement (22-002). (v) Facilities. For a party to verify full compliance with any facilities installation and maintenance obligations (see above). The usual convention is that such rights of access will be exercisable at the risk and expense of the accessing party, on reasonable notice, and should not interfere with the customary operation of the relevant facilities. End of Document

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Commissioning, UKBC-GASLNGS 493298693 (2023)

Commissioning Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 23 - Facilities and Commissioning Commissioning 23-006 Where the seller or the buyer is building new facilities for the production and transportation or for the receipt and consumption of gas it will often be necessary to commission and test those facilities ahead of the start date, to ensure they are operable to any applicable standards of performance. The seller could make available a quantity of commissioning gas(sometimes also called “test gas”) for a limited period in advance of the start date (variously called a “commissioning period”, a “test period” or a “run-in period”) in order to enable such commissioning and testing to take place ahead of the start date. The commissioning period could commence upon the occurrence of an event (e.g. when the seller’s facilities are ready, according to a defined test) or upon a fixed date (e.g. 90 days prior to the start date). The commissioning period is rarely defined as a firm entitlement which has the ability to delay the start date. Typically, if for whatever reason the parties have not undertaken the commissioning activities by the time the start date is due then the possibility of commissioning is lost and the start date will still come into effect as planned, with application of the agreed contractual consequences for a party’s failure to perform the GSA. The GSA could impose a deemed, longstop date for the end of the commissioning period, whether by reference to the commissioning of the seller’s facilities or the buyer’s facilities. If the act of commissioning the seller’s facilities precedes the definition of commercial operations under the GSA the buyer could require the GSA to be prescriptive about when commissioning comes to an end, to prevent the seller from delaying the conclusion of commissioning and frustrating the start of commercial operations. 23-007 Subject to what is said below about commissioning procedures, the purpose for which commissioning gas is to be taken will often not be defined too specifically in the GSA, and this could be deliberate in order to facilitate the process of commissioning without undue restraint. The GSA might only provide for commissioning of the buyer’s facilities, which in turn might include any end-users’ facilities (6-010), although they might be commissioned outside of the commissioning regime in the GSA. In this instance the seller will commission its facilities outside of any formal commissioning regime in the GSA and the commissioning of any pipeline could be dealt with separately under the GTA between the shipper and the transporter (26-037). The usual arrangement for the provision of commissioning gas is that the seller will use its reasonable endeavours to make commissioning gas available and will not be liable for a seller’s delivery failure to the extent that it fails to do so—a failure of the seller to deliver commissioning gas will typically be recited as an exception from shortfall (19-004), and that the buyer will use reasonable endeavours to take commissioning gas but will not be liable for its failure to do so. Any applicable undertake gas (18-010) and overtake gas (18-013) provisions might not apply in respect of commissioning gas delivered by the seller in a pipeline gas sale; whether the quality specification requirements (21-002) will or will not apply to any quantity of commissioning gas will depend on what the parties have negotiated in the GSA. Generally, but not always, any quantity of commissioning gas which is made available by the seller and taken delivery of by the buyer will not reduce the contract quantity (12-003) and neither will it count towards satisfaction of the buyer’s take and pay or take or pay commitment (16-003, 16-004). This also makes sense since commissioning gas typically occurs prior to the start date and so prior to the commencement of those commitments.

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Commissioning, UKBC-GASLNGS 493298693 (2023)

23-008 As for the applicable price, the buyer could suggest that commissioning gas should be supplied at a discount to the contract price in order to reflect its relative unreliability, or where the seller is the commissioning party. The seller on the other hand may seek to price commissioning gas at a premium to the contract price, in order to cover any additional and unforeseen costs to the seller of making available the commissioning gas for the benefit of the buyer (unless the seller is the commissioning party). Because the contract price typically applies only to gas delivered after the start date, as does the conventional invoicing and payment mechanism (20-002), and commissioning gas applies ahead of the start date, it might be preferable for the GSA to describe a bespoke price and a corresponding invoicing and payment regime for any commissioning gas which is delivered. Commissioning gas is properly intended only to facilitate commissioning. To prevent the buyer from abusing that principle by taking as much commissioning gas as possible, where it is priced at a discount, the commissioning provisions in the GSA will usually impose some form of limitation on the buyer’s ability to do so, typically in the form of a limited definition of the commissioning period or a fixed definition of the available quantity of commissioning gas. Alternatively this could be achieved through an economic disincentive such as a commissioning gas price which is set at a premium to the contract price. Consequently the act of commissioning could be regarded as any or all of a physical activity, an economic arrangement, a particular measure of gas or an agreed set of timings. Several boundaries could apply. A GSA could provide for the separate agreement between the parties of each of these parameters and also of any further detailed commissioning procedures, including definition of the mechanics of commissioning and the intended outcomes, ahead of the start date, in a separate commissioning agreement. Such an agreement might be expressed to be a condition precedent to the effectiveness of the GSA (10-005). End of Document

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Introduction, UKBC-GASLNGS 493298696 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 24 - Maintenance Introduction 24-001 This chapter addresses the provisions relating to facilities maintenance in a pipeline gas sales contract. Comparable provisions relating to LNG sales contracts are considered at 32-048, although there will be some overlap between the two. Over the lifetime of a GSA the seller’s facilities for the production (and transportation) of gas and the buyer’s facilities for the receipt and consumption or onward transmission of gas may require maintenance, with the frequency and the extent of the maintenance required depending upon the nature and usage of the particular facilities. Maintenance rights could be expressly provided for in the GSA. Alternatively the GSA could be silent on the point, so that the parties are obliged to make their maintenance arrangements as best they can without special provision under the GSA. End of Document

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Maintenance Under the GSA, UKBC-GASLNGS 493298695 (2023)

Maintenance Under the GSA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 24 - Maintenance Maintenance Under the GSA 24-002 Where the seller can predict the need for maintenance of its facilities the seller could reserve in the GSA a right to reduce the quantity of gas which is deliverable to the buyer by a defined quantity for each contract year (or other agreed period), when such maintenance (called “scheduled maintenance”) could be undertaken. When the seller exercises this right the upper limit of the buyer’s permissible nomination range (18-002) will be set by reference to the declared reduced quantity of gas which the seller is able to make available in consequence of such maintenance, the seller will not be liable to the buyer for a seller’s delivery failure for gas which is not delivered during such scheduled maintenance and the quantity of gas not delivered will give an adjustment to the ACQ under a take or pay commitment or relief under a take and pay commitment in favour of the buyer, to the extent of the difference between the quantity of gas which the seller would ordinarily have been obliged to make available for delivery and the declared reduced quantity of gas. A specific maintenance right is less frequently encountered in a true supply-based contract (6-005) or where gas is sold by a true portfolio seller (6-010) since the seller has several sets of facilities over which it could modulate its gas production and transportation operations and so should be better able to accommodate its maintenance requirements through the flexible operation of those facilities. Where the seller has a single set of facilities then it will be more difficult for the seller to manage maintenance in this manner and an express maintenance right under the GSA could be necessary. Because of the loss of sales revenue to the seller which the exercise of a scheduled maintenance right will represent it is ordinarily in the seller’s interests to reduce the delivery of gas using a formal maintenance right under the GSA, and to confine the exercise of the right to those circumstances where any necessary maintenance simply cannot otherwise be undertaken. This is less true, however, where the seller requires greater flexibility in its gas delivery commitments to the buyer (such that the seller is not obliged to deliver gas where it would otherwise be exposed to the risk of a seller’s delivery failure), which it might engineer through an arrangement which has the appearance of a scheduled maintenance right but which in reality is something quite different. A buyer may also wish to reserve an express right under the GSA to maintain its facilities, whereby the quantity of gas which is not required to be delivered during the exercise of such a buyer’s scheduled maintenance right will give relief where a take and pay commitment (16-003) applies or an adjustment in a take or pay commitment (16-004). 24-003 In respect of the seller’s and the buyer’s scheduled maintenance rights under a GSA several issues should be considered: (i) Following through on scheduled maintenance. If one party declares an intention to schedule maintenance then the other party could also decide to undertake simultaneous maintenance. Alternatively, a non-maintaining party could make arrangements to deliver gas elsewhere (in the case of the seller for the buyer’s maintenance) or to take deliveries of gas from elsewhere (in the case of the buyer for the seller’s maintenance), in each case where such a configuration is possible. Consequently the later cancellation of all or part of an agreed scheduled maintenance programme by one party could cause difficulty and disruption. (ii) The extent of the adjustment or relief.

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Maintenance Under the GSA, UKBC-GASLNGS 493298695 (2023)

From the seller’s perspective the adjustment to the ACQ for the buyer’s scheduled maintenance in a take or pay calculation or the relief afforded to the buyer under a take and pay commitment should apply only to the extent that the scheduled maintenance as declared was actually effected by the buyer; if the adjustment applies without reference to whether scheduled maintenance was actually effected by the buyer then this would be an automatic adjustment which would reduce the effective level of the buyer’s take and pay or take or pay commitment, so giving the buyer an additional measure of flexibility in the performance of the GSA without regard to the reality of maintenance. In respect of the seller’s scheduled maintenance the same principle could apply, so that the seller does not also get an automatic reduction in the extent of its obligations for maintenance by name only. The AIEN GSA (6-002) provides that the seller’s obligation to deliver gas and the buyer’s obligation to take delivery of gas will only be reduced to the extent of scheduled maintenance which is actually effected. (iii) Access and audit rights. To enable a party to verify that scheduled maintenance has actually been effected by the other party a party could require a specific right of access to and audit of the other party’s facilities (23-005). Any facilities which are owned or operated by a third party might be less readily open to inspection by a party. (iv) Scheduled maintenance allowance. Scheduled maintenance could be effected by either party as a complete shut down in respect of the delivery or the taking of delivery of gas over a given time period, or as a partial reduction in the quantity of gas which is being delivered or taken delivery of, in order to reflect the extent of the scheduled maintenance requirement. For this reason a scheduled maintenance right should be calculated (say on an annual basis) volumetrically in terms of the allowance of a quantity of gas available in respect of each contract year and to be allocated on a daily basis, rather than as an absolute number of days in respect of which scheduled maintenance could or must be effected. (v) Scheduled maintenance limits. The GSA could impose limits on the extent to which the delivery or the taking of delivery of gas can be curtailed for scheduled maintenance, by reference to certain periods of time in a contract year (such as peak gas demand periods) or even certain contract years themselves. In these periods scheduled maintenance might not be effected, or might be effected only by reference to limitations on the permissible level of gas quantity reductions. (vi) Carry forward of unused maintenance allowances. The GSA could provide in favour of a party that any unutilised portion of the scheduled maintenance allowance for a particular contract year can be carried forward to the next contract year, although the extent of such carry forward could be subject to limitations. (vii) Coordinating and rescheduling scheduled maintenance. Where the seller and the buyer both have scheduled maintenance rights the GSA will usually provide a mechanism for the coordination of their respective entitlements. Where the parties are unable to coordinate their maintenance then they may be free to effect such maintenance whenever they wish to. Alternatively, one party could have the right to make the final determination as to when a common period of scheduled maintenance will be effected. Where the buyer and the seller have both declared a requirement for scheduled maintenance in respect of the same period of time then the extent of the declared reduced quantity of gas which will apply should be the greater of the two requested gas delivery reductions, and double-counting should be avoided. The GSA might also oblige both parties to use at least reasonable endeavours (41-020) to accommodate the rescheduling of scheduled maintenance where necessary. (viii) Allocating scheduled maintenance. Where the seller is delivering gas to several buyers then the buyer could require that the seller’s scheduled maintenance requirements are allocated rateably between all of those buyers, so that the buyer does not bear the seller’s reduction in

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Maintenance Under the GSA, UKBC-GASLNGS 493298695 (2023)

the deliverable quantity of gas disproportionately. The same provision could apply in favour of the seller in respect of the buyer’s scheduled maintenance where the buyer is taking delivery of gas from several different sellers. End of Document

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Maintenance without Provision in the GSA, UKBC-GASLNGS 493298697 (2023)

Maintenance without Provision in the GSA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 24 - Maintenance Maintenance without Provision in the GSA 24-004 The buyer could be reluctant to allow the seller to have an express maintenance right under the GSA because it represents a right of the seller to reduce the deliverable quantities of gas to the buyer. Instead, the buyer says the seller must undertake its maintenance within any delivery downtime which might otherwise be afforded by the GSA. If the seller cannot deliver gas because it is performing required maintenance on its facilities then the seller will ostensibly be exposed to liability for a seller’s delivery failure (19-002), unless force majeure relief applies (35-001). In such a situation the seller’s position would best be kept whole by performing its required maintenance during any delivery downtime and/or by modulating the usage of multiple gas production and/or transportation facilities such that no delivery failure to the buyer is caused. The seller might also be reluctant to allow the buyer to have an express maintenance right under the GSA since it would lessen the quantity of gas which the buyer is obliged to take delivery of and to pay for. The seller could instead insist that the buyer must undertake its necessary maintenance as best it can within the operational parameters of the GSA, relying on reduced nominations for gas in order to do so. This gives rise to the possibility that the buyer could, in consequence of reducing its nominations, be exposed to the liability to make a take or pay payment or a take and pay payment, which in either case would have to be regarded by the buyer as a cost of performing the necessary maintenance. The buyer has the option to reduce the quantities of gas which it takes delivery of and to perform maintenance without exposure after the point during the contract year when the buyer has met its take and pay or take or pay commitment. However, where there is a high commitment level then in practical terms there may be little scope for the buyer to do so. End of Document

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Maintenance and Unscheduled Outages, UKBC-GASLNGS 493298694 (2023)

Maintenance and Unscheduled Outages Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part B - Sales Contract Terms Chapter 24 - Maintenance Maintenance and Unscheduled Outages 24-005 The maintenance provisions of a GSA are sometimes used as the location for an event described as an “unscheduled outage”. Such an event is typically unexpected and is beyond the control of the affected party, and yet the event is for some reason not capable of being classified as a force majeure event, so not allowing the affected party to secure the corresponding force majeure relief. A GSA could provide that in the event of an unscheduled outage the affected party will notify the other party of the outage and its likely impact and duration, but beyond that the fact of the outage will not excuse the performance by the parties of their obligations under the GSA. An unscheduled outage provision has little obvious connection with scheduled maintenance and more logically should be located in a section of the GSA dealing with the expected performance by a party of its obligations under the GSA. End of Document

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Introduction, UKBC-GASLNGS 493298698 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Introduction 25-001 In determining the arrangements for the transportation of gas by pipeline consideration will typically be given to issues such as the model for the transportation of gas, whether a person should develop its own pipeline or should use a third party pipeline and how a pipeline might be used for the transportation of gas for multiple parties. End of Document

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The Definition of a Pipeline, UKBC-GASLNGS 493298700 (2023)

The Definition of a Pipeline Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles The Definition of a Pipeline 25-002 A pipeline is a length of leakproof annular steelwork which is used to transport gas (and which can be used to store gas) between the points at which gas is put into and is taken out of that pipeline. To add commercial emphasis to the physical description, a pipeline represents the means by which gas can be evacuated from the point of its production to the point where the commercial value of that gas is realised. A pipeline effects the marriage between a seller and its gas and a buyer and its money, and is a crucial component in the commercialisation of gas reserves. A pipeline could traverse two fixed points (often called a “point to point” pipeline), or a pipeline could have several branches, or a pipeline could be part of a wider network. A pipeline could be a purely domestic infrastructure item, could be in place between two states, or could pass through several states. In any of these situations a pipeline could run onshore, offshore, or both. Pipelines can also transport dry gas or wet gas (1-004) and a two-phase pipeline will transport a mixed dry gas and wet gas stream. A gas pipeline could also be referenced as any of the following: (i) In-field pipelines. Also called “flowlines” or “gathering lines”, these are relatively small diameter pipelines which connect gas production wells to gas production facilities and which connect those facilities into trunklines. (ii) Trunklines. These are larger diameter pipelines which typically transport gas from gas production facilities to gas reception facilities. Such pipelines will often be configured to transport gas from several input sources. (iii) Transmission networks. These are relatively high pressure onshore transmission pipeline networks, used to transport gas between various input points and offtake points, and often including compression and processing facilities along their routes. 1 (iv) Distribution pipelines. Sometimes called “takeaway pipelines”, these are lower pressure pipelines configured to transport gas to end-user facilities from gas reception facilities, LNG regasification facilities or transmission networks. (v) Local distribution zones. These are relatively low-pressure local gas distribution networks, used for the reticulation of gas to industrial and domestic customers. (vi) Interconnectors. These are pipelines which transport gas between two defined points, particularly where the flow of gas in the pipeline can be reversed either way. 25-003

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The Definition of a Pipeline, UKBC-GASLNGS 493298700 (2023)

Gas is a compressible medium. In contrast to the pipeline transportation of oil, more gas can be transported in a pipeline through the addition of gas compression facilities, but such facilities have inevitable capital and operating costs and create greenhouse gas emissions, and it might not always be possible for compression facilities to be installed. An alternative model for the transportation of increased quantities of gas is to run two parallel pipelines (sometimes called a “two-string pipeline”). 2

Footnotes 1

2

The National Transmission System (NTS), an onshore gas transmission network which is owned and operated by National Grid (consisting of more than 4000 miles of high pressure gas pipelines, bringing in gas from various gas and LNG import terminals and delivering gas into lower pressure, local distribution networks), is the principal transmission network in the UK. See, for example, the Nord Stream gas pipelines between Russia and Germany.

End of Document

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Pipeline Project Participants, UKBC-GASLNGS 534049315 (2023)

Pipeline Project Participants Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Pipeline Project Participants 25-004 A pipeline project will have several different participants (or groups of participants), each of which is considered below.

The pipeline owner 25-005

The pipeline owner represents the logical place to start in describing the participants in a pipeline project. The identity of the pipeline owner could take several forms: (i) The state. A pipeline could be developed and owned by a state (entirely, or as a majority partner in a consortium) as an item of national infrastructure, intended to promote and to ensure the commercialisation of the state’s resources. Several states could also combine to develop a cross-border pipeline. 3 (ii) The field owner. A pipeline could be owned and developed by a private sector participant (which could be a single company or a consortium of companies) which owns a gas deposit, as a means of transporting gas from where the gas is produced to an intended market (sometimes called a “principal field pipeline”). Such a pipeline is essentially a midstream extension of an upstream project, and the upstream concession, tax and accounting arrangements could be amended to account for the additional midstream element. (iii) The commercial asset owner. A pipeline could be owned as a stand-alone revenue-generating asset, without exclusive commitment to the transportation of gas from a principal field. The owner of such a pipeline (which could be any of an energy company, a bank, an infrastructure fund or a private equity house) would be an infrastructure investor which wants to maximise the level of the tariff and/or capacity charge (see below) which are payable for the use of the pipeline and would ordinarily have no equity interest in selling or shipping gas which is transported through the pipeline. 4

The pipeline user 25-006

The pipeline user is the person who enters into a formal arrangement for the transportation of its gas quantities through the pipeline. The pipeline user could be a third party which is able to access the pipeline for the transportation of gas (such as a person for whom the pipeline was created as a multi-shipper pipeline (see below) or a satellite field owner (see below)), or it

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Pipeline Project Participants, UKBC-GASLNGS 534049315 (2023)

could be the pipeline owner where it contracts with itself for the transportation of its gas in order to generate revenue which can be used to support a project financing of the development costs of the pipeline (see below). In each of these cases a gas transportation agreement (GTA) would be entered into between the pipeline owner (acting as the transporter) and the pipeline user (acting as the shipper).

The lender 25-007

The development of a new pipeline could be funded by the pipeline owner from its equity resources. Alternatively, the pipeline owner could seek the provision of finance from a third party in order to meet the development costs of the pipeline. A typical structure for a pipeline financing is to enlist a consortium of commercial banks to lend money for the development of the pipeline on a project finance basis, with a pipeline operating company (see above) as the borrower and with the banks being repaid by tariff and/or capacity charge income (see below) which is generated from the use of the pipeline by the pipeline user. The commercial bank finance could also be underpinned in part by various export credit agencies (ECAs), providing guarantees or even direct finance. 5 The shareholders in the pipeline operating company could be required to provide guarantees to the lender for the obligations of the pipeline operating company under the financing arrangements. Third party finance will not cover the entire costs of the pipeline’s development. Typically it is the case that the pipeline owner will meet some of the development costs itself, where the relationship between the debt element which a lender provides and the equity element which the pipeline owner provides is described as the debt to equity ratio, or as the pipeline project’s gearing. A typical debt to equity ratio for a pipeline project is 70:30, although this is not set in stone. Ratios with higher gearing (that is, more debt) or with lower gearing (that is, less debt) could exist, which will reflect the views of the lender as to the risks associated with the pipeline project and its willingness to lend to it.

The satellite field owner 25-008

A discovered gas field could be regarded by its owner as uneconomic to develop in its own right, because of the absence of existing transportation options to take the gas from field to market and/or because the estimated quantities of in-situ gas are insufficient to justify the expense of building a new pipeline. Such a field would be a stranded asset. The advent of an adjacent pipeline which has been developed by someone else could change all that, if the field owner calculates that securing transportation capacity in the pipeline could make the development of its field an economic proposition. To this end the field owner could wish to secure access to capacity for the transportation of its gas, 6 acting as a pipeline user. The presence of an adjacent pipeline which could potentially transport gas could transform a stranded asset into a satellite field. The ambition of the satellite field owner to transport its gas through an adjacent pipeline could be realised by voluntarily entering into an agreement with the pipeline owner. Alternatively there could be some form of third party access provision (see below) in place which enables the satellite field owner to compel the negotiation of rights for the transportation of its gas. In either case, the use of the pipeline by the satellite field owner and by the pipeline owner would create a multi-shipper pipeline (see below). The pipeline owner could wish to develop and operate its pipeline as an equity pipeline (see below) and could be unwilling to permit the dilution of the capacity in the pipeline which affording access to a satellite field owner would represent. Alternatively the reaction of the pipeline owner to the ambition of the satellite field owner could be a positive one. Agreement could be reached between the parties, and the pipeline owner could welcome the tariff and/or capacity charge (see below) which the satellite field owner pays as part of the means by which the pipeline owner can fund the costs of development of the pipeline.

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Pipeline Project Participants, UKBC-GASLNGS 534049315 (2023)

The views of the pipeline owner as to the admission of third party gas for transportation in its pipeline could also change over time. If the levels of gas production from the principal field which the pipeline was originally built to service eventually decline and unutilised capacity in the pipeline (also called “ullage”) becomes a reality the pipeline owner could become willing to move from operating the pipeline as an equity asset to providing a service for the transportation of third party gas quantities through a multi-shipper pipeline.

The end user 25-009

The end user is the person to whom gas is supplied at an offtake point from the pipeline. It will be the gas buyer under a gas sales arrangement, where the seller will be the pipeline owner or the pipeline user. Although the end user is ordinarily not party to any of the operational arrangements relating to the pipeline 7 it will have a critical role to play in the shaping of a pipeline project. After all, the pipeline could have been developed in order to meet the demands for gas of an end user. The price which the end user pays for gas under the gas sales arrangement could include a transportation component, intended to cover the tariff and/or capacity charge (see below) which were payable by the pipeline user to the pipeline owner to facilitate the transportation of gas to the end user. And the end user will have a keen interest in ensuring that the pipeline is developed and operated safely and reliably, so that gas flows through it all times to meet its needs.

The state 25-010

Any pipeline will (to some extent) be subject to a regulated environment in the jurisdiction (or jurisdictions) in which the pipeline is situated, as a consequence of which the influence of the state will inevitably be felt in how that pipeline comes into existence and thereafter exists. 8 Even where a pipeline is owned and operated by private sector participants, and the state has no direct part to play in the ownership, operation, financing or usage of the pipeline, there are nevertheless three principal areas where some measure of state involvement in relation to the pipeline could be apparent: (i) Permitting. The state will grant any necessary permits for the construction of and for any subsequent modifications to the pipeline (or, alternatively, the state could refuse to grant such permits where the state wishes to control the proliferation of new pipeline infrastructure). (ii) Regulation. The state will regulate the operation of the pipeline by the pipeline owner and the use of the pipeline by a pipeline user (which could relate to ensuring compliance with defined health, safety and environmental standards, and to regulation of the ownership and the usage of the pipeline). This regulatory function could also include setting tariffs and other charges which are recoverable by the pipeline owner (depending on the degree of regulation to which the pipeline is subject—see below). (iii) Taxation. The state could tax the revenues which are earned by the pipeline owner from the use of the pipeline. Additionally, the state could seek to levy certain transit fees, payable by the pipeline owner, where a pipeline traverses the state’s lands. Transit fees are not the same as tariffs. 9 The manner in which the state seeks to regulate a pipeline could also change over time. The package of laws and regulations which are applied by a state to a pipeline at a particular point in time could evolve, to reflect changed regulatory perspectives.

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Pipeline Project Participants, UKBC-GASLNGS 534049315 (2023)

This change of regulatory direction could jeopardise the ability of the pipeline owner and the pipeline user (and a lender) to realise their original commercial expectations from the pipeline. 10 Although a pipeline project will be structured according to the particular regulatory, commercial and operational needs of all the project participants (and any other persons having an interest in the pipeline), such that a uniform structure for a pipeline project does not exist, the following schematic illustrates how the relationship between the various participants described above could be structured:

25-011

Footnotes 3

See, for example, the GASBOL gas pipeline between Bolivia and Brazil.

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Pipeline Project Participants, UKBC-GASLNGS 534049315 (2023)

4 5 6 7 8 9 10

The opportunity to assume the ownership of the pipeline by an infrastructure investor could come about later in the pipeline’s life as a regulatory consequence, through the voluntary or the obligatory unbundling of the vertically integrated operations of a gas producer which was also the original pipeline owner (see below). The TransAdriatic Pipeline (TAP) (https://www.tap-ag.com) is a good example of a gas pipeline financing which applies this structure. In December 2018 financial close (for €3.9 billion) was achieved, with a significant part of that being third party finance provided by a consortium of 17 commercial banks, backed by various ECAs. Assuming also that there is, broadly, some compatibility between the composition of the gas as it produced from the satellite field and the composition of the gas which the pipeline owner intends to transport in the pipeline, and also sufficient unutilised capacity in the pipeline. A partial exception to this is where the end user expresses an interest in being party to the allocation and attribution arrangements which apply in a multi-shipper pipeline (see below). This influence could also exist at a supra-national level—the European Union assumes responsibility for the regulation of pipeline infrastructure in the EU. See T. J. Dimitroff, “Cross-border oil and gas pipeline risk and sustainable mitigations” (2014) 7 The Journal of World Energy Law and Business, 4. See, for example, the arbitration in respect of the Nord Stream 2 gas pipeline (Nord Stream 2 AG v The European Union PCA Case 2020-07).

End of Document

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The Transportation Model, UKBC-GASLNGS 493298703 (2023)

The Transportation Model Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles The Transportation Model 25-012 The traditional model for the transportation of gas by a person through a pipeline owned by another person is one whereby the person requiring the provision of transportation services (the shipper) delivers gas to the person operating the pipeline (the transporter) at a defined input point and the transporter then transports and redelivers gas to the shipper at a further defined output point. This transportation service is provided by the transporter in consideration of the payment of some form of compensation, whether a tariff and/or capacity payments (29-002) by the shipper. Custody of the gas transfers to the transporter for the duration of the residency of that gas in the pipeline but the transfer of title and risk might not. An alternative transportation model is the buyback formulation, whereby the transporter buys gas from the shipper at a defined input point at a defined price (e.g. X) and the shipper buys back that gas from the transporter at a defined output point at a defined buyback price (e.g. X + 1). The profit made by the transporter on the buyback of gas by the shipper represents the economic benefit to the transporter of transporting the gas and consequently no tariff and/or capacity payments will be payable by the shipper for this service. The buyback transportation model could be considered where local regulatory requirements preclude a transporter from operating a pipeline as an income-generating asset. End of Document

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Pipeline Access – To Own or To Use?, UKBC-GASLNGS 493298704 (2023)

Pipeline Access – To Own or To Use? Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Pipeline Access – To Own or To Use? 25-013 When the seller plans the development of a greenfield gas field project (2-015) and the seller has assumed responsibility for the transportation of gas to the buyer at a defined delivery point, the seller has two options for the evacuation of gas from the gas field by pipeline, assuming that the seller does not already have a pipeline in place: to develop a new pipeline to transport the gas, or to enter into an agreement to have the gas transported through an existing pipeline. It may be that the buyer will be the person required to effect gas transportation; whether the seller or the buyer assumes responsibility for transporting gas by pipeline from the gas field, the same basic issues will arise for consideration (but the rest of this section presumes that the seller has assumed this responsibility). If the seller elects to develop a new pipeline then the seller would be the pipeline owner. The key characteristic of this approach is that the seller will retain an equity interest in the pipeline and the pipeline will be used principally or exclusively for the transportation of the seller’s gas, in which case the pipeline is often called an “equity gas pipeline”. The pipeline might be constructed with a gas-carrying capacity equivalent only to that which is necessary to allow the performance of the underlying GSA. 25-014 The sellers of gas from several adjacent gas fields, or a group of individual sellers from the same gas field, might team up to develop a new gas pipeline. This group of sellers might establish a joint venture company, with the sellers owning the shares in that company, for the development of the pipeline, and this company could be the legal owner of the pipeline. Once the pipeline has been established on this basis, the ownership shares of the pipeline could be transferred and could diverge from the identity of the shippers of gas in the pipeline. The relationship between the sellers, as shareholders, will be regulated by a shareholders’ agreement. Alternatively, in an unincorporated joint venture model a group of sellers could enter into some form of joint venture arrangement, often called a “pipeline operating agreement” (POA), amongst themselves in order to regulate their relationship. A pipeline operating agreement will have much of the appearance of an oil and gas production joint operating agreement and will additionally contain many of the elements of a shareholders’ agreement. Under the pipeline operating agreement the capacity interests in the pipeline are typically allocated pro rata to the ownership interests of the pipeline owners. 25-015 Somebody will need to take responsibility for the day-to-day physical operation of the pipeline and so the sellers (as the ultimate owners of the pipeline) will appoint an entity to operate the pipeline on their behalf. The operator can be appointed in one of several ways. The operator might be one of the sellers acting in the separate capacity of operator, appointed and operating as such under the terms of the shareholders’ agreement or the pipeline operating agreement, or it could be the joint venture company itself (if it is sufficiently staffed to do so) in the incorporated joint venture model. In either of these cases the basic principle which applies is that the operator makes neither a loss nor a profit (although its costs of acting will be met by the pipeline owners in proportion to their ownership interest percentages) and assumes no liability for its acts or omissions, although this limitation is usually disapplied in the case of the operator’s proven wilful misconduct (which will be specifically defined—36-008).

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Pipeline Access – To Own or To Use?, UKBC-GASLNGS 493298704 (2023)

Alternatively the operator could be an entirely separate entity, appointed and acting under a separate operating services agreement for a fee and potentially assuming a greater level of liability to the pipeline owners. 25-016 Pipeline ownership, in whichever form it takes, allows a seller to retain control over the pipeline but it also requires that all of the capital and operating costs associated with the pipeline (including the eventual costs of decommissioning) will be borne by the seller, which could prove to be an unattractive burden. In light of this, a seller’s preference might be to make arrangements with the owner of an existing adjacent pipeline for the transportation of the seller’s gas to the buyer through that pipeline. In this case in a conventional gas transportation arrangement (GTA) that seller (acting as a shipper) will contract with the owner (acting as a transporter) for the use of a portion of the pipeline’s capacity and will pay a tariff and/or capacity payments for the provision of the gas transportation service. There might also need to be a tie-in (23-004) of the seller’s gas production infrastructure to the existing pipeline. 25-017 A combination of several factors will typically influence the decision of a seller as to whether to develop and own, or to enter into an agreement for the use of, a pipeline: (i) Physical considerations. A seller might not need to develop and own a pipeline if there is an existing adjacent pipeline which it might be able to utilise. The proximity of an existing pipeline with ullage can be critical; there are numerous examples of situations where gas fields have not been developed after discovery simply because there was no adjacent gas transportation infrastructure available for use and a seller did not wish to commit to developing such infrastructure itself. Even if there is an existing adjacent pipeline with available ullage, the quality specification (21-002) of the gas which that pipeline is currently transporting must be broadly compatible with the specification of the gas to be transported on behalf of the seller, and the input pressure of the new gas cannot be so high that it backs out the existing gas which is being transported in the pipeline. The seller might find that the owner is not interested in transporting the seller’s gas because of quality issues and the problems which the incompatibility of quality specifications might cause to the commingled stream (27-002) and so the options for the seller are to develop its own pipeline or to process the gas and improve its specification prior to its entry into the existing pipeline—either of which will have a cost implication and which could in turn affect the economic viability to the seller of the whole gas commercialisation project. (ii) Economic and commercial factors. In its capacity as a prospective pipeline owner a seller will have to decide whether the likely returns from the development of its gas field will be large enough to support the cost of a new pipeline and whether it wishes to undertake such an investment. As a potential shipper in an existing pipeline, however, economic factors will also be key to the negotiation between the transporter and the seller as a shipper. The transporter will seek to recover as high a tariff and/or capacity payment as possible in order to cover its capital and operating costs and also to make a profit. The seller will wish to keep transportation costs as low as possible, unless there is a complete pass-through to the buyer of the transportation costs as part of the contract price (13-001), in order to maximise the profit on the sale of its gas. Ultimately, the level of tariff and/or capacity payments payable to the transporter could play a significant part in influencing the seller’s views on developing a pipeline for itself. It could also be that a transporter does not wish to transport the seller’s gas for the purely commercial reason that the seller’s gas could compete with the transporter’s equity gas in the downstream market but there might be competition law principles which could operate to preclude such discrimination. (iii) Security of supply. If a seller fails to deliver gas as required by the terms of its GSA then that seller may incur some form of shortfall liability to its buyer (19-002). It will therefore be of the utmost importance to the seller to have a secure, reliable means for transporting its gas. A transporter in an existing pipeline might have a greater interest in protecting the carriage of its own equity gas

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Pipeline Access – To Own or To Use?, UKBC-GASLNGS 493298704 (2023)

and so the seller which is considering becoming a shipper will be influenced by the issue of what priority status (see below) will be granted to its gas when that seller becomes a new shipper within an existing pipeline. (iv) Regulation. A government may have an interest in discouraging the proliferation of new pipelines on economic or ecological grounds and there could be regulatory provisions restricting the options available to a seller. This could be effected by requiring the granting of a consent (which can be withheld at the discretion of the granting authority) for the construction of a new pipeline or by intervention in the form of enforcing the right of a seller to use an existing pipeline if agreement between the seller and the existing owner cannot be reached voluntarily where a third party access regime (7-009) is in place. By using a combination of these powers a government can encourage a seller to use an existing pipeline if a suitable one is available, in which case a seller may not have the need or even the option to develop a new pipeline in its own right. In some jurisdictions it is also a local regulatory requirement that pipeline infrastructure must be owned directly or indirectly by the state and so it is simply not possible for a private sector seller to elect to develop a new pipeline. (v) Land rights, geography and politics. Whether a new pipeline can be developed and the route which it will take will often be dictated by the ability of a seller to secure satisfactory title or access rights to the marine areas and land over or under which the pipeline will travel, the geographical viability of the proposed pipeline route and any applicable political logistics. These issues will be particularly acute where the planned pipeline traverses several jurisdictions. A pipeline which crosses national boundaries will also often represent something of a political accord between the relevant nations, transcending the commercial agreement between the parties to the pipeline project. A bilateral treaty or some similar arrangement could be entered into by the pipeline host states to regulate their relationship (such as the treaties entered into variously between the government of the UK and the governments of Norway, Eire and Belgium relating to sub-sea gas pipelines which connect the UK and those countries) and such treaty protection could also provide comfort to third party lenders (5-013) that their investment in the pipeline will be protected from adverse state intervention. A pipeline might also benefit from some wider multilateral investment treaty protections (25-026). 25-018 Where a person is precluded from being the legal owner of a pipeline (e.g. where it is a regulatory requirement that pipeline infrastructure must be owned by the state) that person might still be able to secure the entitlement to own the transportation capacity rights in that pipeline and to use that capacity itself, or to grant that capacity to a third party for the transportation of gas. Ownership of the pipeline would be divorced from rights of access to the capacity in the pipeline, where holding and transferring capacity rights will not necessarily modify the ownership interests in the pipeline. When considering the structuring of a gas pipeline project it is important to bear in mind the distinction between legal ownership of the pipeline as a physical asset and the ability to use, or to grant the right to use, capacity within that pipeline; the former tends to arouse a more passionate interest but the latter is often the more valuable commodity. A project for the delivery of a new pipeline will need to satisfy a number of essential conditions. Aside from giving a safe, reliable and sustainable technical solution for gas transportation, and accommodating the often divergent commercial agendas of the various project participants, these conditions could, depending on the particular pipeline and the aspirations of the project participants, include requirements that the construction of the pipeline will come in on time and on budget, that the operational structure of the pipeline is one which makes the pipeline capable of being financed by third party lenders (initially or through a subsequent refinancing—and within this requirement the pipeline structure could facilitate future revenue generation from third party access), that the ownership and usage structure of the pipeline should allow free transferability of interests (as an owner and a shipper), and should accommodate any state ownership agenda but without admitting undue state control, and that the pipeline structure could conceive of future expansion opportunities and connected phase developments. End of Document

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Hybrid Ownership and Usage Models, UKBC-GASLNGS 493298699 (2023)

Hybrid Ownership and Usage Models Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Hybrid Ownership and Usage Models 25-019 In practice the operational model of a pipeline could demonstrate some overlap between the principles of ownership and usage outlined above, and a strict distinction between the two capacities could become blurred: (i) The shipper as a pipeline owner. In some situations the transporter and the shipper under a GTA could enter into an agreement such that the shipper reserves a portion of the capacity of the pipeline which it can either use for transporting its own gas (sometimes called “primary capacity”) or which it can sub-let to other prospective shippers (sometimes called “secondary capacity”). Under the primary GTA the shipper undertakes to the transporter to pay for the reserved capacity in respect of the primary capacity. The shipper could become a transporter in its own right in respect of the reserved capacity, with the letting of the secondary capacity to a sub-shipper under a secondary GTA. The net result, conceptually but not physically, is a notional pipeline of capacity within the larger pipeline (sometimes called “pipe within a pipe”) which is controlled by the shipper. The shipper is in a quasi-equity position in that it has taken on a portion of the risk that normally sits with the transporter, and the shipper accepts the risk that it might not be transporting any gas and so recouping its investment. Whilst the transporter receives committed payment for use of a section of the pipeline capacity it has effectively also given up a degree of the control over the sub-let portion of the pipeline that is normally only the transporter’s to exercise. (ii) The pipeline owner as a shipper. Where a pipeline is intended to be used as a multi-shipper pipeline the owner (as the transporter) might enter into an agreement with itself (in the separate capacity as a shipper) to transport its gas in its own pipeline. The transporter does this in order to set up the terms of a model GTA by which it will then expect other shippers to abide. The transporter is therefore a transporter and a shipper at the same time, but in two separate and distinct legal capacities. A seller which has developed a new pipeline and which plans to transport its equity gas through its own pipeline can also be treated as a shipper where the ownership of the pipeline is vested in a separate pipeline owner company, with that company then granting transportation rights to that seller (as a shipper) in return for a tariff. This model is often relied on where the costs of pipeline development are being met by third party lenders in order that a revenue stream (in the form of tariff payable by the seller as a shipper, and any third party shippers) is generated for the benefit of the lenders. End of Document

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Equity Gas and Multi-Shipper Pipelines, UKBC-GASLNGS 493298705 (2023)

Equity Gas and Multi-Shipper Pipelines Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Equity Gas and Multi-Shipper Pipelines 25-020 If a seller has elected to develop and own its pipeline then the next decision which must be made is whether that pipeline will be used only to transport gas for the purpose of meeting that seller’s GSA commitments (i.e. purely an equity gas pipeline) or whether the pipeline might additionally be developed as a multi-shipper pipeline (sometimes also called a “common carrier pipeline”), as an income-generating asset in its own right through exploiting the options for the transportation of third party gas for a tariff. From a seller’s perspective there could be a difficult decision to make between developing a pipeline which has sufficient capacity to transport the gas requirements for a particular GSA and which is large enough to accommodate estimated future demands for the transportation of additional quantities of gas. If a pipeline is developed with ullage which remains unutilised then the overall economics of the pipeline project will be impaired. On the other hand a smaller pipeline where aggregate transportation requirements exceed the pipeline’s capacity will require subsequent expansion. This could be effected through the addition of compression facilities, which could be limited by restrictions on pipeline operating pressures, or an expansion to the existing pipeline through the introduction of a duplicate section of pipeline (called “looping”, or “twinning”) over a certain section of the pipeline route, both of which will have additional cost consequences. 25-021 If a seller elects to develop a pipeline for intended use as a multi-shipper pipeline then the cost consequence of doing so is that the oversizing of the pipeline with ullage available for third party gas transportation will increase the capital cost of construction. Whilst the decision as to whether to oversize a pipeline for wider use as a commercial asset is largely a commercial and economic issue for a seller, several other factors might also condition the prospective development of a multi-shipper pipeline: (i) Regulatory considerations. It may be that under the rules of a particular jurisdiction a private sector participant is precluded from developing an item of infrastructure which is perceived to be of importance to national interests, like a gas pipeline, with a view to operating it for profit. It may, however, be possible for a seller to overcome this, up to point at least, by re-characterising the tariff and/or capacity payments paid by any shippers as recoupment of that seller’s investment rather than as profit, or by implementing a buyback transportation model (see above). (ii) Physical considerations. It is only worth oversizing the pipeline if there are adjacent and chemically compatible gas fields which are likely to be commercialised and which will rely on the proposed pipeline as the method of evacuating the gas which they contain. If a seller’s gas field is a stranded asset then it is more logical that the pipeline is designed and constructed solely to satisfy the needs of the commercialisation of that gas field. (iii) Financing considerations. Where a seller is relying on third party lenders to meet the costs of construction of the pipeline (5-013) the lenders could be reluctant to commit to the extra financing required for an oversized pipeline. This would leave the seller with the option

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Equity Gas and Multi-Shipper Pipelines, UKBC-GASLNGS 493298705 (2023)

of funding the incremental cost of oversizing the pipeline if it wishes to proceed (although those incremental costs might be capable of later being refinanced). If a person, in its capacity as a pipeline owner, decides to admit a third party to utilise the incremental capacity in its pipeline, or if that person decides to become a shipper within an existing pipeline for the transportation of its gas, then in either case the person will enter into a GTA—by which the person (as the transporter) will offer a transportation service to the shipper and/ or by which the person would itself become a shipper. Where multiple shippers use the pipeline then the transporter might also institute a standard set of pipeline system rules (see below). End of Document

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The Gas Transportation Philosophy, UKBC-GASLNGS 493298701 (2023)

The Gas Transportation Philosophy Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles The Gas Transportation Philosophy 25-022 Where there is a GTA in prospect between a transporter and a shipper then many of the terms of that GTA will be shaped by how the transporter views its role in the commercialisation of the gas reserves which are to be transported in the pipeline. In this regard the transporter and the shipper might have differing philosophical expectations. Where the shipper under the GTA is also the seller under the GSA then the shipper might regard the GTA as little more than a vehicle for the effective commercial performance of the GSA and might view both agreements as part of a single economic package. Gas sales proceeds earned under the GSA by the seller will (in part) flow through to the transporter in the form of tariff and/or capacity payments under the GTA. Consequently, says the shipper at least, the transporter has an unavoidable economic interest in the proper performance of the GSA which should be reflected through terms in the GTA, whereby the transporter shares in the risks of force majeure interruption under the GSA and termination or loss of the GSA and accepts a meaningful liability for a failure to provide the transportation services which has adverse consequences for the shipper as the seller under the GSA. The shipper’s arguments in this regard will be particularly magnified where the shipper is the primary user of the pipeline’s capacity and/or where the GSA’s revenues necessitated (and effectively underpinned the development and the financing of) the pipeline. The transporter could have a different view, however. Because the transporter does not share in the economic benefits of the sale of gas under the GSA through a full profit share via the tariff and/or capacity payments under the GTA, then the transporter could wish to be insulated from the GSA. The transporter could see itself as the provider of a defined transportation service in consideration of the receipt of a relatively modest stipend, which does not afford to the transporter a sufficient incentive to invest equally in the risks of performance of the GSA. Consequently, says the transporter, the GTA should be structured such that the transporter is unaffected by the temporary or permanent cessation of revenues under the GSA and any losses or liabilities which are to be borne by the seller under the GSA. The transporter will be particularly keen to stress this pure transporter concept where the pipeline is operated as a multi-shipper pipeline and the transporter is transporting gas for several shippers and in order to service several GSAs. End of Document

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Pipeline System Rules, UKBC-GASLNGS 493298702 (2023)

Pipeline System Rules Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Pipeline System Rules 25-023 Where a transporter has established a multi-shipper pipeline (see above) then the transporter could establish a common set of pipeline system rules by which all shippers will be required to be abide as a condition of using the pipeline. This is the essence of a network code which will govern a pipeline’s operation. The pipeline system rules might constitute a series of identical, bilateral agreements between the transporter and the various shippers. In principle this would be no different to a series of identical but separate GTAs. Alternatively the pipeline system rules might be set up as a mutual agreement between the transporter and all the shippers, such that the rights and obligations created by the rules are enforceable by and between the transporter and all the shippers. The pipeline system rules, which might be changed over time, to reflect any evolution in the manner in which the pipeline is operated, will be incorporated by reference into the terms of any GTA and will typically recite provisions relating to the following principles: (i) Allocation and attribution. The rules will set out the terms of allocation and attribution (27-003, 27-007) to apply between all persons using the pipeline. (ii) Measurement. The rules will set out standard protocols for the measurement of gas (22-002) at the input point and the delivery point. (iii) Quality specifications and gas pressure requirements. The rules will set out quality specification and pressure requirements (21-002) to apply for the delivery of gas by the shipper at the input point and for redelivery by the transporter at the delivery point. (iv) Nominations and variations. The rules will set out provisions for the nominations of gas to be delivered by the shipper at the input point and redelivered by the transporter at the delivery point, and for possible variations to those nominations (18-002, 18-008). (v) Inter-shipper liabilities. To cater for the fact that there will be no ostensible liability regime between shippers the rules could set out an intershipper liability regime. This would enable shippers to recover against each other in the event that one shipper inputs off-specification gas to the pipeline with adverse consequences for another shipper, would enable shippers to negotiate limitations of liability between themselves and would protect the transporter from being a conduit for inter-shipper actions which otherwise might only be brought through the implication of the transporter without a shipper-to-shipper regime. The rules could, for example, impose a mutual hold harmless liability allocation model (36-002) between the shippers in order to preclude open liability actions between the shippers. Liability as between a shipper and the transporter would be governed by the terms of the GTA, and whichever liability allocation model the GSA has adopted. These provisions will have a significant bearing on the reciprocal terms of the GTA (and also any underlying GSA), and the parties to the GTA and the GSA will need to be aware of them when negotiating their gas transportation and sales arrangements.

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Pipeline System Rules, UKBC-GASLNGS 493298702 (2023)

25-024 Because the pipeline system rules create an agreement between the transporter and all the shippers then ordinarily the rules will not be capable of amendment except by all the parties. The rules might provide, however, that a transporter has the right to impose changes unilaterally in certain circumstances and it may be that certain classes of shippers (e.g. shippers with interruptible capacity) will have reduced veto rights in respect of changes to the rules which are required by shippers with firm capacity. Any modification of the pipeline system rules will by implication modify the terms of the GTA and could necessitate a modification to the relevant terms of any GSA (which the GTA and the GSA should recognise and provide for). A shipper will also require that any other prospective user of the pipeline is formally constituted (through some form of deed of accession) as a shipper with the benefit of a GTA, such that any pipeline system rules will apply equally to that pipeline user. This would prevent the risk of the transporter allowing a third party to use the pipeline (whether informally or through a buyback mechanism) for the transportation of gas on unduly preferential terms. End of Document

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Flow Control and Pressure Control, UKBC-GASLNGS 493298706 (2023)

Flow Control and Pressure Control Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Flow Control and Pressure Control 25-025 It may be that at the delivery point (11-002) the flow of gas from the pipeline can be controlled by a person by the deployment of a valve which is configured to do so. This is flow control. Alternatively, the ability of gas to flow freely could effectively be controlled by a person maintaining a certain gas pressure differential in its facilities. This is pressure control. Where, for example, the shipper maintains a higher gas pressure in its gas reception facilities than a transporter maintains in its pipeline then there will be a pressure barrier which could prevent the delivery of gas into the shipper’s gas reception facilities. Correspondingly, lower gas pressure in the shipper’s gas reception facilities could (in the absence of flow control) lead to a pressure drop and a transporter could be unable to control the flow of gas from its pipeline into the gas reception facilities. The shipper, as the seller under a GSA, could require a delivery tolerance (11-011) or a shortfall tolerance (19-004) in the GSA to manage the risk of over-deliveries or under-deliveries caused by the application of flow control or pressure control at the delivery point. End of Document

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Pipeline Treaty Protection, UKBC-GASLNGS 534049316 (2023)

Pipeline Treaty Protection Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 25 - Pipeline Project Structures and Principles Pipeline Treaty Protection 25-026 Within a particular jurisdiction a pipeline could be owned, developed and operated under a bespoke form of state-issued permit, which could take the form of what is known as a host government agreement (HGA). There is no particular form for an HGA, which will take the form of whatever best suits the required arrangements between the state and the pipeline owner (and a lender), although the model form HGA which is published by the Energy Charter Secretariat is a possible starting place. 11 An HGA would have a number of provisions, relating (for example) to: the creation of project development obligations and commitments between the state and the pipeline owner; the pipeline route and the securing of all necessary permits and consents and land rights; the creation, or the recognition, of the fiscal, taxation and regulatory regime which will apply to the pipeline; environmental standards and requirements (including decommissioning); and principles of investment protection, managing changes in law and regulation, and stabilisation. 25-027 A pipeline which crosses national boundaries will represent something of a political accord between the relevant states, transcending the commercial agreement between the parties to the pipeline project. A bilateral treaty could be entered into by the host states to regulate their relationship (such as the treaties entered into variously between the UK and Norway, Eire and Belgium relating to sub-sea gas pipelines which connect the UK and those countries), and a multi-level accord (sometimes also called an inter-governmental agreement (IGA)) could apply to a pipeline which passes through several jurisdictions. 12 25-028 A pipeline treaty or an IGA would have a number of provisions, relating (for example) to: principles of ownership and operation of the pipeline (including its various sections, which would include commitments by each host state); the pipeline route and the securing of all necessary permits and consents and land rights; common technical standards for the operation and the maintenance of the pipeline; fiscal rules and principles of taxation which apply to all owners, users and related persons in respect of the pipeline; the establishment of a regulatory authority for the management of the pipeline; principles for funding pipeline modifications and expansions; principles for the admission of a shipper to use the pipeline (including the setting of the tariff and/or capacity charge); a protocol for the resolution of disputes between owners, users and related persons in respect of the pipeline; a declaration of the status of the treaty or the IGA under the domestic law of each host state and under international law, and of the relationship between the treaty or IGA and other laws, accords and agreements; and principles of investment protection, managing changes in law and regulation, and stabilisation. 25-029 A pipeline might also benefit from the protection which could be afforded by a wider multilateral investment treaty project, such as the Energy Charter Treaty. The protection of a pipeline by any of an HGA, an IGA or a treaty could also provide comfort to a lender (see above) that its investment in the pipeline will be protected from adverse state or agency intervention.

Footnotes

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Pipeline Treaty Protection, UKBC-GASLNGS 534049316 (2023)

11 12

Available at https://www.energycharter.org/fileadmin/DocumentsMedia/Legal/ma2-en.pdf. See, for example, the 2003 inter-governmental agreement between the states of Nigeria, Togo, Benin and Ghana which applies in respect of the West African Gas Pipeline (WAGP)—https://www.wagpa.org/Treaty_on_WAGP_Project.PDF.

End of Document

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Introduction, UKBC-GASLNGS 493298715 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Introduction 26-001 This chapter considers the key commercial elements for the transportation of gas by pipeline which are embodied within a GTA. This chapter addresses the essential non-price terms of the GTA. The tariff or capacity payment payable for the use of a pipeline is addressed separately in Ch.29. End of Document

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The Basis of the GTA, UKBC-GASLNGS 493298723 (2023)

The Basis of the GTA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Basis of the GTA 26-002 In a GTA the shipper’s primary aim is to ensure that it has in place a contract whereby the transporter will, on a cost-effective basis, transport the quantities of gas for the duration necessary to meet the shipper’s downstream requirements and that the transporter will adequately compensate the shipper for a failure to do so. From the transporter’s perspective, the transporter will transport gas for the shipper in exchange for the tariff and/or capacity payments. 26-003 The GTA is essentially an exchange mechanism for gas transportation and payment. Underlying the GTA are the presumptions that gas will be shipped through the pipeline for the shipper, and that payments to the transporter, will be interrupted. These are rebuttable presumptions. There will, over the lifetime of the GTA, be interruptions, as a consequence of which gas will not be shipped through the pipeline for the shipper and payments will not be made to the transporter. The role of the GTA is to legislate for what treatment should be afforded to the failure to ship gas or the failure to make payment, depending upon the particular circumstances of the failure. Apart from securing an acceptable tariff and/or capacity payments structure, the shipper will require the GTA to reflect the following components: (i) Capacity and flexibility. The shipper will require the GTA to reserve adequate capacity to meet the shipper’s commercial requirements, and any necessary flexibility to accommodate any variation in those requirements, including longer-term capacity reservations and adjustments. (ii) Meaningful liability for failure. The shipper will require that if the transporter fails to provide the transportation services when required to do so, or if the transporter redelivers gas to the shipper which fails to meet the required quality specification, then the transporter will be liable to compensate the shipper for any loss or liability which the shipper incurs. (iii) Equality of treatment. The shipper will require that it is treated on a non-discriminatory basis in comparison with other shippers, including the transporter, as shipper, in an equity gas pipeline (25-013). This will include securing comfort for the shipper in respect of issues such as the allocation of pipeline capacity reduction and the equality of tariff and/or capacity payments. The transporter’s aim will be to secure a remunerative transportation obligation which imposes manageable gas transportation commitments, and a limitation of liability for a failure to perform its obligations which will be commensurate with (what the transporter says is) the relatively low level of reward which is typically payable to the transporter in consideration of the performance of its obligations under the GTA. 26-004 Apart from securing an acceptable tariff and/or capacity payments structure, the transporter will require the GTA to be structured on the basis of:

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The Basis of the GTA, UKBC-GASLNGS 493298723 (2023)

(i) Firm payment obligations for the shipper. The transporter will ideally require the shipper to have an absolute requirement to make tariff and/or capacity payments in consideration of the provision of the transportation services without relief for events of force majeure which might interrupt the provision of those services. (ii) Manageable deliverability. The transporter will require gas transportation commitments which the transporter is able to accommodate for the benefit of all shippers using the pipeline (which might, however, be based on affording priority service to certain shippers). (iii) Limited liability for failure. The transporter will require a clear limitation of its liability for any failure to fully provide the transportation services in favour of the shipper, and in particular the transporter will be keen to avoid an assumption of liability for any consequential losses (36-008) which the shipper might incur in consequence of that failure. In respect of gas transportation arrangements a GTA could be the product of negotiation between the shipper and the transporter, except that the transportation of gas through an established transmission network would be on the basis of adherence by the shipper to a defined network code or set of pipeline system rules (25-023). Where gas is to be transported through a multi-shipper pipeline (25-020) then there may be predetermined pipeline system rules and/or a standard GTA which will apply to all gas to be transported through that pipeline. These rules and/or the standard GTA will often determine and so could condition the free negotiability between the shipper and the transporter of technical and operational issues such as the quality specification of, nominations and variations for and the measurement of the gas which is to be transported. The GTA will in these respects have little option but to recite what has already been provided for in the rules and/or the standard GTA. Even the tariff and/or capacity payments payable by the shipper could be published and not open to negotiation. End of Document

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The Parties, UKBC-GASLNGS 493298711 (2023)

The Parties Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Parties 26-005 There will be two parties to any GTA (assuming a conventional gas transportation model), the transporter and the shipper. It may also be necessary for the GTA to describe the intended involvement of any third parties who will support the commitments of the parties, such as a guarantor of a shipper’s obligations. The original value of the contracting parties in the GTA could be preserved and protected through provisions controlling the transfer of interests by a party (38-005) and reacting to change of control to which a party might be subject (38-008). In the simplest situation there will be a single transporter and a single shipper. The AIEN GTA (6-002) adopts this two-party formulation. Like the GSA, the position becomes more complicated where multiple entities directly or indirectly constitute a party to the GTA, which is more likely where private companies acting in joint venture are involved in the development of a gas project. Where this happens the precise capacity in which a person is acting will need to be determined and appropriate drafting inserted in the GTA to reflect that capacity. 26-006 Where several persons have agreed to ship gas together those parties could (subject to any applicable competition law principles) structure the shipper-side relationship by reference to the following models: (i) Joint venture company shipper. A group of prospective shippers could incorporate a joint venture company (sometimes called a “project company shipper”) in which they will hold their agreed equity interests and wherein their relationship will be governed by a shareholders’ agreement and that entity, rather than its constituent shareholders, will be the recipient of transportation services provided by the transporter. The critical issue for the transporter to appreciate in this arrangement is that its contractual remedies under the GTA will ordinarily be enforceable only against the joint venture company as the shipper and not against the shareholders themselves, unless those shareholders have expressly undertaken to support the commitments of the joint venture company. This realisation could lead to a demand for collateral support by the transporter in respect of the shippers’ obligations (referenced through the joint venture company) under the GTA. (ii) Separate shippers, separate GTAs. A group of prospective shippers could require the provision of the transportation services directly, and the transporter itself may require this formulation, on the basis that the direct contractual commitment of the prospective shippers is preferable to that of their joint venture company. One way of doing this is for each shipper to have its own separate GTA with the transporter (although the terms of the individual GTAs will be negotiated to be identical), with each GTA reciting an individual reserved capacity which when aggregated across the various GTAs will meet the totality of the shippers’ gas transportation requirements. This model suggests the several liability of each shipper to the transporter in accordance with the terms of its individual GTA. To provide a single point of contact for the administration of joint operational matters

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The Parties, UKBC-GASLNGS 493298711 (2023)

and the giving and receiving of notices across the individual GTAs there could be a representative agreement entered into between all of the shippers and the transporter. (iii) Separate shippers, single GTA. The transporter might object to the separate shippers model suggested above on the basis that a series of separate GTAs and a representative agreement is administratively too onerous to accommodate. As a reaction to this there could be a single GTA entered into jointly by all of the shippers, reciting their respective reserved capacities and commitments to the transporter. This model ostensibly suggests the several liability of each shipper to the transporter, and each shipper will wish this liability basis to be made especially clear in the single GTA if that is the agreed liability regime. The position of several liability could be modified by agreement between the transporter and the shippers to provide for their joint and several liability, in order to improve the overall security of commitment to the transporter, which might in turn entail a separate contribution agreement between the shippers regarding the reallocation between them of their joint liability—this would be an internal matter for the shippers to address. To this end there could be a single GTA entered into jointly by all of the shippers for the aggregate transportation of gas by the transporter on a joint liability basis. (iv) Agency transportation. To provide for a single GTA with the joint liability of multiple shippers but with a single shipper-side point of contact the GTA could be structured such that one of the shippers will be appointed to act for itself and as the declared agent of the other shippers in the transportation of gas by the transporter, with the corresponding agency liability. In this case a single GTA will be entered into between one shipper (representing itself and acting as agent for the other shippers as disclosed principals) and the transporter. The transporter might be a state-owned entity which is entitled to transport gas or it might be a private company holding a concession to do so. The transporter might be the pipeline owner or it might be a person who has the right to allocate capacity in the pipeline. The transporter will usually be a single entity which has undertaken to provide the transportation services, which could be a single company or several entities acting together through a joint venture company. End of Document

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The Term, UKBC-GASLNGS 493298720 (2023)

The Term Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Term 26-007 The GTA will have a start date and an intended duration. The termination events by which the GTA could come to an end before the end of that intended duration are addressed separately (Ch.39). In particular, attention should be paid to the circumstances for the possible co-termination of the GSA and the GTA where they are interdependent arrangements (see below). As is the case with the GSA, the commencement of the GTA will be determined by a combination of when the GTA is executed, when the start date for the provision of the transportation services comes into force and the application of any conditions precedent. In the context of the GTA there might be a condition precedent (10-005) for tie-in agreements at either end of the pipeline (23-004). A late start by the transporter in the provision of the transportation services could also lead to a right of the shipper to recover some form of liquidated damage. 26-008 Where the shipper is also the seller under the GSA then the shipper will need to ensure that the effective commencement (and the remaining in place thereafter) of the provision of the transportation services under the GTA is consistent with the requirements of the GSA. In this circumstance the shipper’s preference could be for a GTA which is set to exist for the duration of the GSA, as before committing money to the construction of gas production facilities and executing the GSA the shipper will want to ensure that a reliable means of transporting its gas will exist for the anticipated sales period. Alternatively the shipper might require a GTA which subsists for the operational lifetime of the gas field which underpins its gas sales arrangements. This might be a period which exceeds the term of a particular GSA, however, and so the shipper should only request a gas transportation commitment of this nature if it is confident of the need for the transportation capacity beyond the lifetime of the GSA (and beyond the guarantee of revenue which the GSA suggests). 26-009 Because there may be circumstances in the GSA which allow a premature termination then this could trigger a co-termination of the GTA. To protect the transporter’s interests the transporter may require a commitment from the shipper to pay for the transportation services for a defined plateau period, such that a guaranteed revenue stream will accrue to the transporter. During this plateau period the shipper would be denied the right to terminate the GTA, at least for reasons of commercial convenience, and the shipper might also be denied the right to reduce the reserved capacity. Where the shipper is also the seller of gas under the GSA and has agreed a plateau period with the buyer for the sale and purchase of gas (12-004) then that seller/shipper should seek to correspond the respective plateau periods under each of the GSA and the GTA. The GTA might also be set to track any extension periods under the GSA by having an equivalent extension right in favour of the shipper but this could offend certain regulatory principles by allocating incremental pipeline capacity on a preferential basis. Consequently the alternative is to structure the GTA such that pipeline capacity is booked for the full term of the GSA, to include any prospective extension periods, with a right of the shipper to terminate the GTA prematurely if the extension period under the GTA capacity is not required in order to perform the GSA.

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The Term, UKBC-GASLNGS 493298720 (2023)

26-010 The ability of the transporter to set a GTA with a lengthy duration could be subject to competition law issues in the same manner as applies to long-term arrangements for the sale of gas (7-028). The GTA might also be written so that it comes to an end after the transporter has transported a defined quantity of gas on behalf of the shipper (see the AIEN GTA (6-002)). A GTA might provide for termination by the shipper in the event of a prolonged failure of the transporter to transport gas (whether classified as lost gas (see below) or relieved by force majeure (35-001)) where the failure to transport gas has reached a defined threshold. This would enable the shipper to be released from a GTA which has been characterised by a persistent failure of the transporter to transport gas and instead to seek an alternative gas transportation commitment, although in reality there might be no available alternative for the shipper because of a lack of proximate pipeline capacity. A GTA might provide that the GTA can be terminated by the transporter because of a prolonged period of the shipper’s failure to input gas into the pipeline for transportation which reaches a defined threshold. Although the transporter could have the benefit of the shipper’s ship or pay commitment (29-009) the transporter might prefer the flexibility to terminate the GTA in favour of securing alternative gas transportation opportunities with shippers who present a more regular revenue stream. A capacitiesbased contract (28-002) should however be less concerned with this risk. A transporter might seek to preserve its ability to abandon a pipeline at any time when it is no longer economic to operate that pipeline. A compromise may be reached under which the shipper can take over the ownership of the pipeline if the transporter decides to abandon it or, more likely, the tariff and/or capacity payments payable by the shipper are enhanced by the shipper’s payment of an appropriate proportion (i.e. all) of the pipeline operating costs which the transporter would otherwise incur through keeping the pipeline in operation for the shipper’s benefit. 26-011

Where a GTA is geared purely towards the reservation of transportation capacity in the pipeline then there will be a defined period (or periods) of capacity reservation which will constitute a basic term (or terms). Where, however, a GTA is entered into as a transportation contract which is linked to support a particular GSA then the GTA is unlikely to have a basic term in its own right. Instead, the GTA could be largely tied to the duration of the GSA. There will be a linkage between termination of a GSA and a GTA in respect of the situation where the seller under the GSA is also the shipper under the GTA—that party will wish to be relieved of its obligations under the GTA in the event of a loss of the GSA and equally will wish to be relieved of its obligations under the GSA where there is a loss of the GTA. The transporter will be keen, however, to limit the circumstances in which a contract to which it is not party can compromise its commercial arrangements.

26-012 An issue which is often discussed in the negotiation of the GTA is the principle of whether the termination of a GSA to which the shipper (in its capacity as the seller, assuming a delivered sale) is subject and which the GTA is intended to service might result in either an automatic termination of the GTA (in its entirety, or at least insofar as the capacity of the GTA relates to the terminated GSA, which will be more appropriate where a single GTA is used for the carriage of gas for several GSAs) or in a right, but not an obligation, of the shipper to terminate the GTA (again, whether in its entirety or only insofar as it relates to the GSA). The shipper might also require an equal consideration of this principle for the situation where the performance of the GSA is suspended which might result in an equivalent suspension of the provision of the transportation services (and the shipper’s tariff payment obligations). The shipper’s rationale for requiring a corresponding termination or suspension of the GTA is that since the GSA represents the flow of revenue to the shipper (as seller) which is in turn applied to meet the shipper’s tariff and/or capacity payment or ship or pay commitments then a loss of that revenue flow under the GSA must be compensated for by corresponding relief under the GTA. The shipper could seek a right to terminate or to suspend the GTA simply at its convenience, or could reference that right specifically to corresponding events under the GSA. 26-013

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The Term, UKBC-GASLNGS 493298720 (2023)

The transporter might argue, however, that the risk of termination or suspension of the GSA must be the shipper’s risk alone to bear and that there is no justification for why the transporter should also suffer through a termination or suspension of the GTA, not least since the transporter might have developed and financed the pipeline solely or largely in reliance upon the anticipated tariff and/or capacity payment and ship or pay payments which were expected from the shipper. In furtherance of this principle of pure transportation, the transporter could even seek to preclude the shipper from being able to secure force majeure relief in respect of its liabilities under the GTA because of an event affecting or otherwise relating to the GSA. As a counterpoint to this, the GTA might also prescribe that any recoveries which the seller makes in consequence of the termination or suspension of the GSA should flow through (in whole or in part) to the transporter under the GTA (since, says the transporter, it should share equally in the risks and the rewards under the GSA). A possible compromise in respect of these competing interests might be represented by provision in the GTA that the shipper’s right to so terminate or suspend in consequence of a corresponding termination or suspension of the GSA can only apply where the GSA is terminated or suspended for reasons other than by the buyer because of the seller’s default under the GSA. This would therefore allow a termination or suspension of the GTA where the GSA is terminated or suspended by the seller for the buyer’s default or by either party for prolonged force majeure or even by the seller where the seller has an economic termination right to do so (39-005). A right of the shipper to reduce the reserved capacity under the GTA, or provision in the GTA that the shipper is entitled to an adjustment to the ship or pay quantity, in either case in respect of disruptions under the GSA, could have the effect of affording relief to the shipper under the GTA which could be applied where there has been a problem with the GSA but without the need to rely on a formal termination or suspension of the GTA. End of Document

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The Input Point and the Delivery Point, UKBC-GASLNGS 493298721 (2023)

The Input Point and the Delivery Point Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Input Point and the Delivery Point 26-014 The GTA will define an input point and a delivery point and will provide for how title, custody and risk (see below) are intended to transfer between the parties. The input point (sometimes called the “delivery point”—not to be confused with the delivery point under the GSA (11-002), although in certain circumstances they could be the same physical location) is the point on the pipeline at which the shipper will deliver and transfer custody of the gas to the transporter for transportation in the pipeline. The delivery point (sometimes called the “redelivery point”) is the point on the pipeline at which the transporter will deliver and transfer custody of the gas back to the shipper. The pipeline might be developed by the transporter to provide for multiple input points and multiple delivery points along its length, which might be built in initially upon the development of the pipeline or which might be added in during the lifetime of the pipeline (e.g. through an expansion). End of Document

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Title, Risk and Custody Transfers, UKBC-GASLNGS 493298709 (2023)

Title, Risk and Custody Transfers Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Title, Risk and Custody Transfers 26-015 The GTA will provide for the allocation of title to, risk of loss of or damage to and custody of the gas to be transported as between the transporter and the shipper. In a conventional GTA the formulation appears as follows: (i) Title. Title to the gas could transfer to the transporter for the duration of the carriage of that gas within the pipeline or title could remain with the shipper whilst the gas is in the pipeline up to the delivery point. In the UK’s NTS (25-002) title to all gas in the transmission network vests in the transporter at the point of entry and transfers back to the shipper at the point of exit, effectively giving the shipper a contractual drawing right against the transporter. This structure is applied ostensibly in recognition of the perceived legal difficulty commonly associated with multiple shippers holding title to separate portions of gas in a commingled stream. This is not a universal practice, however, and in some pipelines (see e.g. the AIEN GTA (6-002)) each shipper could retain title to its share of the gas in the pipeline, an interest realised effectively through a form of tenancy in common where an individual shipper’s share as a tenant in common in the commingled stream is determined according to the extent of its original contribution to that commingled stream. The entitlement of each shipper would be established through the application of an allocation process. Where title does not ostensibly transfer to the transporter, title might still transfer to the transporter under any emergency powers where the transporter is obliged to make a forced disposal (by sale or otherwise) of the shipper’s gas in order to maintain safe operating pressures. Any intermediate title transfer point, where there is a notional title transfer not accompanied by an equivalent transfer of physical custody, will need to consider the English law rules applicable to purported title transfers in respect of the sale of unascertained goods (11-006). (ii) Risk. Risk of the loss of or damage to the gas whilst it is in the custody of the transporter could remain with the shipper and the transporter will have no liability to the shipper (other than a lost gas liability (see below)) for the loss of or damage to the gas whilst it is in the transporter’s custody. This might be disapplied however such for loss or damage caused by the transporter’s wilful misconduct (36-008). In some GTAs, however, risk passes to the transporter for the duration of the carriage of the gas within the pipeline. Whichever party bears the risk at any time should insure the gas against the risk of loss or damage, at least to the extent that an insurance recovery would be needed to defray a lost gas liability (for the transporter) or to top up a lost gas remedy (for the shipper). (iii) Custody. Custody (i.e. possession) of the gas will inevitably transfer from the shipper to the transporter at the input point and will transfer from the transporter back to the shipper at the delivery point. Under the buyback transportation model (25-012) there is an absolute sale of gas from the shipper to the transporter at the sales (input) point and from the transporter back to the shipper at the resale (delivery) point. Consequently title, custody and risk will each transfer absolutely between the shipper and the transporter at the point of each sale (reflective of the sales process). 26-016

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Title, Risk and Custody Transfers, UKBC-GASLNGS 493298709 (2023)

Where the seller under the GSA and the shipper under the GTA are the same person then the redelivery and the transfer of custody of the gas by the transporter to the shipper at the delivery point could be the precursor of the delivery and the transfer of custody of the gas to the buyer under the GSA and consequently there will at the delivery point be a series of immediately sequential custody transfers from the transporter to the shipper (i.e. the seller) and then from the seller to the buyer. The GTA could contain warranties of good title and freedom from encumbrances in respect of gas delivered by the shipper at the input point and in respect of gas redelivered by the transporter at the delivery point. The GTA might also seek to exclude certain implied conditions which might otherwise apply to the transfers of title, risk and custody under the GTA. End of Document

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Interruption, UKBC-GASLNGS 493298714 (2023)

Interruption Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Interruption 26-017 In some GTAs the transporter might reserve the right to interrupt the delivery of gas to the shipper, typically for a defined period of time and usually only upon a requisite period of notice being given to the shipper and often only on a defined number of occasions in each year. Such a right of interruption is of commercial advantage to the transporter where the transporter is transporting gas on behalf of several shippers and wishes to prefer the provision of transportation services for certain shippers, for example at a time where operational constraints prevent the transporter from being able to transport gas to all of its shippers. From the shipper’s perspective a right of interruption should only be acceptable where the shipper is able to switch to an alternative means of gas transportation or is able to manage without gas transportation services for the duration of the interruption. To give the shipper an economic incentive to accept a GTA with a right of interruption in favour of the transporter either the overall tariff might be lower or where the transporter exercises the interruption right the shipper might be compensated by the application of a tariff discount in respect of equivalent following quantities of gas. The interruption will usually also give an adjustment to the ship or pay quantity (29-009). In a capacities-based contract (28-002) the shipper will not pay for the interruption insofar as it relates to the reserved capacity and might receive a further discount. 26-018 The GTA might also contain a right for the shipper to suspend its obligation to transport gas for a certain period of time, without incurring a payment liability to the transporter. Such a right, which is effectively an interruption right in favour of the shipper, could be exercised by the shipper for operational or commercial reasons. End of Document

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Collateral Support, UKBC-GASLNGS 493298718 (2023)

Collateral Support Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Collateral Support 26-019 Similar principles for the provision of collateral support in respect of a party’s payment obligations which are found in a GSA (15-002) could apply in respect of the arrangements for the transportation of gas. Under a GTA the shipper will have significant payment obligations such as tariff/capacity payments for gas nominated for transportation and under any ship or pay commitment. Effectively, the shipper’s primary obligation under the GTA is to pay money to the transporter. The treatment of the risk of a deterioration in the shipper’s creditworthiness during the lifetime of the GTA and the possible provision of a collateral commitment in support of the shipper, whether initially or subsequently through a form of re-guarantee provision, is in principle the same as that which applies under the GSA. The transportation of gas on behalf of a joint venture company as a shipper (see above) might also lead to a request by the transporter for a guarantee of the performance of the GTA by that company from the shareholders of the joint venture company. As for the transporter, its primary obligation is one of performance (that is, the provision of the transportation services) rather than payment and the track record of the transporter’s experience and reliability should be of greater concern to the shipper than the transporter’s creditworthiness. The transporter will also have the pipeline in place, which should give comfort to the shipper of the transporter’s ability to perform its obligations under the GTA. Payment could also be due from the transporter to the shipper in certain circumstances under the GTA, however, and this might cause the shipper to require the transporter to furnish some form of collateral support for those payment obligations. End of Document

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The Transporter’s Obligations, UKBC-GASLNGS 493298712 (2023)

The Transporter’s Obligations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Transporter’s Obligations 26-020 The GTA will recite a series of obligations on the transporter’s part. It is important that the scope of the services to be performed by the transporter is clearly set out, not least since these services will be the justification for the tariff and/or capacity payments payable by the shipper. Principally, the transporter’s obligations will be to take delivery of gas from the shipper at the input point and to redeliver gas to the shipper at the delivery point, in such volumes and at such times that are consistent with the shipper’s requirements and otherwise in accordance with certain quality specification conditions. More specifically, the transporter’s obligations under the GTA will include the following: (i) Transportation of gas from the input point to the delivery point. Under a quantities-based contract (28-002) the transporter should be obliged to accept the shipper’s gas at the input point, effect the transportation of that gas through the pipeline and redeliver a reciprocal quantity of gas to the shipper at the delivery point (although in reality the shipper will not input and take delivery of the exact same molecules of gas and consequently the term “transportation” is over-stated). The redelivered gas should also meet the requisite quality specification. Quantities of gas could be transported by the transporter in excess of the shipper’s firm entitlements subject to the transporter either using reasonable endeavours (41-020) to do so or through a general commitment of the transporter to act as a reasonable and prudent operator (41-023). The shipper may require the pipeline to transport gas for immediate redelivery, or to store gas for later redelivery. Thus, the pipeline is both a transportation and a storage asset, although not a storage asset in the conventional sense (and the transporter might not share this view). (ii) Treatment and processing of gas. The transporter might undertake responsibility for treating and processing gas prior to redelivering it to the shipper at the delivery point. It may also be that the transporter has no choice but to exercise this function because of the transporter’s admission of off-specification gas into the pipeline. The transporter might also offer gas processing services to the shipper prior to the entry of gas into the pipeline or at its facilities upstream of the delivery point (for a fee). Where the GTA includes a processing service the agreement is often called a “transportation and processing agreement” (TPA). The transporter might also offer an emergency processing and treatment service for a shipper in order to address off-specification gas, which would be above and beyond any standard transportation and processing commitment (and which might be priced accordingly). (iii) Facilities. The transporter may be obliged (in the case of a new-build pipeline) to design, construct, install, commission, operate and maintain the pipeline and ancillary facilities. These requirements may be the subject of a specific facilities obligation (see below). Any incremental facilities which may be required during the lifetime of the GTA (e.g. compression or looping (twinning)) could be paid for by the transporter or by the shipper, depending on whether the GTA makes provision for such a cost pass-through.

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The Transporter’s Obligations, UKBC-GASLNGS 493298712 (2023)

(iv) Measurement. The transporter is usually responsible to meter the quantity and analyse the quality of gas at the input point and at the delivery point. The subject of measurement is addressed below. (v) Allocation and attribution. The GTA (whether directly or indirectly through any pipeline system rules (25-023)) could reference the principles of allocation and attribution which will be undertaken by the transporter in a multi-shipper pipeline. (vi) Stock accounting. The transporter could be obliged to maintain accounts of each shipper’s stock of gas in the pipeline from time to time, including in relation to the shipper’s linepack accounts (28-008) and linefill accounts (28-009). 26-021 The transporter might reserve the right to suspend the provision of the transportation services (without liability to the shipper for doing so) where, for example, the shipper has failed to perform its obligations, such as the obligation to make payment, where the shipper has failed to input gas at the input point which meets the input point quality specification or where the shipper has failed to perform any obligation to take delivery of redelivered gas. The GTA might also excuse the transporter from providing the transportation service on a day unless the quantity of gas nominated by the shipper (either alone or together with all other shippers in the pipeline) meets or exceeds the required linefill quantity, or where the safe operating pressure regime of the pipeline might be impaired. The GTA could also provide that the transporter will have no say in how the shipper conducts its business either side of the input point and the delivery point, nor the shipper in how the transporter conducts its business, in a manner similar to the seller’s reservations under a GSA (11-013). End of Document

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The Shipper’s Obligations, UKBC-GASLNGS 493298716 (2023)

The Shipper’s Obligations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Shipper’s Obligations 26-022 The GTA will also recite several obligations on the shipper’s part which will be necessary for the proper performance of the GTA: (i) Payment. The primary obligation of the shipper under the GTA is to make payment to the transporter. Payment will be due from the shipper as tariff for nominated quantities, as capacity payments for reserved capacities and under any ship or pay commitment (Ch.29). The mechanism in the GTA for invoicing and payment is addressed below. The payment obligation could be absolute, or it could be qualified for a force majeure event (see below). (ii) Facilities. The shipper may be obliged to design, construct, install, commission, operate and maintain certain facilities at the input point and possibly at the delivery point. This requirement may be the subject of a specific facilities obligation. (iii) Nominations. The GTA should require the shipper to give to the transporter a notice of the nominated quantities of gas to be transported in the pipeline on the shipper’s behalf, with such frequency and in respect of such periods as is agreed in the GTA. (iv) Delivery and taking delivery of gas. The shipper might not be obliged to deliver gas into the pipeline at the input point, but any gas which the shipper does deliver should meet the requisite quality specification (see below). The GTA might oblige the shipper to take delivery at the delivery point of the quantities of gas which the transporter has transported to the delivery point on the shipper’s behalf. Although the shipper may wish to use the pipeline effectively for the storage of gas there may be other shippers using the pipeline for the transportation of associated gas (1-004) for whom a constant through-flow of gas is necessary in order to maintain the production of associated liquids and those other shippers may have caused the transporter to mandate the taking of delivery of gas by all shippers at the delivery point as part of the pipeline system rules. Taking delivery of gas will also protect the safe operating pressure regime for the pipeline. The GTA could therefore contain a provision akin to an undertake provision under the GSA (18-010) in order to incentivise the shipper to take delivery of gas at the delivery point. Alternatively the transporter could refuse to accept the delivery of gas by the shipper at the input point where the shipper does not maintain the taking of delivery of equivalent quantities of gas at the delivery point. (v) Provision of linefill. The GTA might oblige the shipper to provide quantities of linefill gas (28-009) and fuel gas (28-010) in certain circumstances. End of Document

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The Transporter’s Failure, UKBC-GASLNGS 493298724 (2023)

The Transporter’s Failure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Transporter’s Failure 26-023 Where the transporter has failed to provide the transportation services, as required by the terms of the GTA, the shipper will seek a remedy. This failure could ultimately result in termination of the GTA by the shipper. The shipper, where it is also the seller under the GSA, will likely face a loss of revenues and some liability to its buyer for a failure to deliver gas in response to that buyer’s nominations and will seek to recover at least part of this exposure from the transporter. “Lost gas” is the term sometimes used to denote gas which the transporter has failed to redeliver to the shipper at the delivery point when required (and also which the transporter has failed to take delivery of from the shipper at the input point although the remedies of the shipper under the GTA should not expose the transporter to a double jeopardy, with liability at each end of the pipeline for the same incident). The GTA might make exceptions to lost gas for gas not taken delivery of or not redelivered by the transporter for reasons of force majeure, due to the shipper’s acts or omissions or due to permissible nondeliveries in a manner similar to the exclusions from a seller’s shortfall (19-004). In respect of the transporter’s obligations the transporter cannot undertake an absolute guarantee to meet the shipper’s requirements, since the reality is that over the lifetime of the GTA there could be circumstances which could interrupt the ability of the transporter to meet those obligations. The GTA must address such possibilities and consequently the transporter’s failure to take delivery of gas or to redeliver gas could be attributable to any of the following: (i) Permissible failure. The transporter’s failure could be permissible according to the terms of the GTA. The transporter could, for example, be relieved from the obligation to take delivery of or to redeliver gas because it is exercising scheduled maintenance rights or in the exercise of a delivery interruption right or for operational safety reasons, for which the transporter will have no liability to the shipper. (ii) Relieved breach. The transporter’s failure could be a breach of the GTA in respect of which the transporter is entitled to claim relief from any prospective liability in accordance with the force majeure provisions in the GTA, for which the transporter will have no liability to the shipper. (iii) Unrelieved breach. The transporter’s failure could be a breach of the GTA which is not permissible and in respect of which the transporter is not entitled to claim relief and for which the transporter will be liable to the shipper, with the extent of the transporter’s liability to be determined under applicable law or by the application of specific liability provisions under the GTA. Consequently, whenever the transporter fails to take delivery of or to redeliver gas the circumstances of the particular failure must be analysed in order that the correct provisions of the GTA are applied between the parties. The shipper might suggest that because the pipeline is a vehicle to service the performance of the GSA, and because the transporter has an indirect economic interest in the GSA through the receipt of tariff and/or capacity payments under the GTA which is payable by the shipper out of the proceeds of sale which it has received from the buyer under the GSA, the transporter

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The Transporter’s Failure, UKBC-GASLNGS 493298724 (2023)

must bear at least some of the risks associated with the GSA, and so there will be some pass-through of GSA liabilities into the GTA. 26-024 In response to this suggestion the transporter might point out that its commercial expectations under the GTA are quite different to those of the seller under the GSA and consequently its liability for non-performance of the GTA should match the commensurately lower level of reward which it expects to earn. Much will depend on the transporter’s operating philosophy for the pipeline (see above). The transporter might also require that, before it accepts any liability to the shipper for lost gas, the shipper is under an obligation to demonstrate that it actually has suffered a loss or liability because of the transporter’s failure (e.g. the shipper, as seller under the GSA, might have been able to make good the transporter’s failure to transport gas through drawing gas from storage, supplying gas from elsewhere or negotiating some relief with the buyer under the GSA). The shipper might also require a right to access the transporter’s facilities to verify a lost gas event but the transporter might be reluctant to permit this. 26-025 Where the transporter is obliged to compensate the shipper because of the transporter’s failure to provide the transportation service, that compensation might be represented in the GTA by a positive payment obligation for lost gas in favour of the shipper (through a defined lost gas price) or by a discount to future tariff and/or capacity payments. Where the transporter accepts the principle of liability to the shipper the transporter might insist that its liability for a failure to perform its obligations should be limited to the lost gas payment or to the right of the shipper not to have to make any tariff and/or capacity payments in respect of the transporter’s failure. In any event, the transporter will wish it to be made particularly clear in the GTA that the transporter has no liability to the shipper for any consequential losses (36-008) which the shipper has incurred. The GTA might also provide for a liability of the transporter for a failure to redeliver the shipper’s nominated quantities at the delivery point to be set by a lost gas liability or a tariff/capacity payment relief provision which is quantity-reflective. The transporter’s liability for a failure to provide the transportation services could also be applied on a differential scale according to whether the transporter was able to forewarn the shipper of the impending failure (so that the shipper could investigate alternative arrangements) and the extent of that warning. Where the GSA provides for a late start liability (10-012) then the shipper, which may be exposed to incurring this liability in its capacity as the seller under the GSA, might also seek to pass this liability back to the transporter under the GTA where the liability has arisen because of an act or omission of the transporter. Correspondingly, however, the transporter might also wish to secure a proportion of any early start premium which might be afforded to the shipper as the seller by the GSA. End of Document

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The Shipper’s Failure, UKBC-GASLNGS 493298719 (2023)

The Shipper’s Failure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Shipper’s Failure 26-026 It is also possible that the shipper could fail to perform its obligations under the GTA. The remedies that a party might have under the GTA in order to address a default in payment when due by the other party are addressed below. These would apply in respect of the shipper’s failure to make payments when due under the GTA. The potential for termination of the GTA by the transporter because of a failure of the shipper to make gas available for transportation arguably should not apply where the shipper has made corresponding ship or pay payments but the GTA could nevertheless recite a termination right in the transporter’s favour in such a circumstance, similar to the manner in which the seller might have a termination right under a GSA for the buyer’s failure to take gas, despite the existence of a take or pay commitment. Such a termination right for the transporter arguably should not apply in a capacities-based contract, which would mean that the transporter should be indifferent to whether a shipper actually transports gas. End of Document

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Invoicing and Payment, UKBC-GASLNGS 493298710 (2023)

Invoicing and Payment Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Invoicing and Payment 26-027 In similar principle to the invoices required under a GSA (20-002), the invoices which are required under a GTA may be required to be drawn up in a particular format, the shipper typically has no involvement in the preparation of these invoices and the invoices may be subject to annual review and reconciliation. Under a quantities-based contract the shipper should be obliged to pay the tariff on quantities of gas nominated by the shipper for carriage in the pipeline, without reference to whether the shipper has actually sought carriage of that gas. If the GTA recites a formulation whereby the shipper is only obliged to pay tariff on gas which the shipper has actually input for transportation, then the shipper would be able to nominate gas for transportation but not input that gas and so not pay tariff on it, although the shipper would still be liable to, and the transporter would have the benefit of, any ship or pay obligation. Any ship or pay payments due from the shipper will typically be invoiced annually in arrears, unless more frequent payment is agreed. Under a capacities-based contract the shipper will be obliged to make its capacity payments on a (say) monthly basis, whether ahead of or in arrears for the (say) month in respect of which capacity has been reserved. 26-028 Under a GTA the shipper is expected to pay the transporter for the transportation services provided by the transporter, but amounts may also be due from the transporter to the shipper in consequence of the annual reconciliation exercise, where the transporter has assumed a liability to make a lost gas payment to the shipper for the transporter’s failure to provide the transportation service or where a disputed amount held by the transporter is due for payment to the shipper. This could be the subject of a set-off arrangement (20-008). In a GTA a set-off arrangement might particularly be considered where the seller under the GSA is responsible for transporting gas to the buyer at the delivery point and does so through a pipeline which is owned by the buyer—the seller might set-off the tariff and/or capacity payments payable by the seller (as the shipper) to the buyer (as the transporter) under the GTA against the amounts which are owed to the seller by the buyer in its capacity as the buyer under the GSA. Where a buyer has disputed a payment due to the seller under the GSA and has made that payment into an escrow account, or has defaulted in the making of a payment when due, then the seller, if it is the person required as a shipper, in order to transport gas to the delivery point under the GTA, will have paid tariff and/or capacity payments on the transportation of that gas under the GTA and so will have an exposed cash flow position. Although it could be too late for the seller (as shipper) to have avoided the obligation to pay tariff and/or capacity payments on the quantities of gas to which the disputed or the missed payments under the GSA relate, the seller/shipper might argue for a corresponding offset under the GTA in respect of later tariff and/or capacity payments. The transporter is unlikely, however, to be happy to accept such a pass-through of the seller’s risks under the GSA. End of Document

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The Quality Specification, UKBC-GASLNGS 493298713 (2023)

The Quality Specification Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms The Quality Specification 26-029 A GTA will provide for gas which is being transported within a pipeline to meet a defined quality specification, at the point at which gas is put into the pipeline by the shipper and also at the point at which gas is redelivered by the transporter to the shipper. The freedom of the parties to negotiate the quality specification could be limited where the gas is to be transported to the delivery point through a multi-shipper pipeline (25-020), since the pipeline operating regime which is set out in the pipeline system rules (25-023) will typically import a prescribed specification for application to all quantities of gas using the pipeline for delivery ultimately to the buyer at the delivery point. The input point and delivery point gas specifications are customarily recited in the GTA but where the gas is being transported through a multi-shipper pipeline the pipeline system rules will be the definitive statement of those specifications, for adherence to by the shippers (for the input point specification) and by the transporter (for the delivery point specification). These specifications could still be set out in the GTA but this would be more for the information of the parties. The pipeline system rules might provide for changes to the specifications over time, to address, for example, a changing profile in the chemical composition of the gas fields which are principally relying on the pipeline for the transportation of their gas. In protection of the shippers’ interests, however, it is unlikely that the rules will allow the transporter to unilaterally mandate a change to the specifications. Rather, the usual mechanism is that such a change must be agreed by all or a defined majority of the shippers using the pipeline at the time the change is suggested. 26-030 Depending on the magnitude of the change, a change to the specifications under the pipeline system rules will immediately impact the GTA and will have a consequential effect on the deliverability of gas under the GSA. If this happens the seller under the GSA could find that gas transported to the delivery point which complies with the revised pipeline specification no longer meets the specification in the GSA. Ideally the seller might reserve an equivalent right in the GSA to modify the specification to suit, but the buyer might resist this because the exercise of such a right could result in gas being delivered under the GSA at a revised specification which ultimately renders the gas unusable by the buyer, at least without the expense and effort of further processing. In this situation a possible compromise is that the seller, as the shipper under the GTA, will try to restrict the circumstances in which the specifications can be changed in the pipeline system rules without its consent and will try to secure in the GSA the ability to match any change in the upstream specification, at least within certain limits. Alternatively, the buyer could declare that changes to the specifications upstream of the delivery point are of no concern to the buyer and that the seller has an absolute obligation to deliver gas which meets the specification originally prescribed in the GSA. This would oblige the seller to process the gas on its arrival at the delivery point in order that the specification at the delivery point meets the requirements of the GSA, and this could be expressly disqualified as an event entitling the seller to claim force majeure relief. 26-031 The transporter and the shipper each have a vital interest in ensuring that gas in the pipeline meets a defined quality specification. The transporter will want to ensure that the pipeline is not damaged by contaminants, nor that it must suspend the transportation of gas for all shippers because of an off-specification gas event, and the shipper will want to ensure that its gas is not

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The Quality Specification, UKBC-GASLNGS 493298713 (2023)

contaminated by being commingled with gas of a substantially different quality and that its gas will meet the required delivery point specification. The GTA will typically recite an input point specification for all gas coming into the pipeline. This specification sets out minimum standards with respect to a number of physical characteristics of the gas. There will also be a delivery point specification stated in the GTA for gas which is redelivered by the transporter to the shipper at the delivery point. In consequence of the commingling in the pipeline of gas from different fields in a multi-shipper pipeline, the input point and the delivery point specifications may be slightly different and any differences could be blended away in the commingled stream. If the transporter has undertaken to process the gas prior to its delivery to the shipper at the delivery point then the delivery point specification may differ from that applying at the input point. If the transporter has allowed gas of a lower specification into the pipeline then the transporter may have to treat the entire commingled stream in order to meet the delivery point specification. 26-032 Because of the risk that gas from a new field will be of a different quality from that currently being transported through the pipeline, the existing shippers might seek to restrict the ability of the transporter to accept gas from new fields. The transporter, however, will want an unfettered right to accept any gas, subject to the obligation to redeliver gas at the delivery point specification, in the interests of maximising the use of the pipeline and the income-earning opportunities which that represents. The transporter will be interested to know whether it could blend away any off-specification components and so meet the required delivery point specification. Consequently, the transporter could require a wide discretion to accept what could otherwise be classified as off-specification gas. In this situation the transporter might reject a shipper’s demands for a say in the acceptance of new gas into the pipeline, pointing to the fundamental obligation of the transporter to redeliver gas which meets the required delivery point specification and the liability which the transporter has under the GTA for a failure to meet that obligation as being an adequate incentive for the transporter to refuse to facilitate the introduction of irremediable off-specification gas into the pipeline. A shipper might, however, point out in response that the transporter’s willingness to accept gas into the pipeline which, whilst it might fail to meet the input point specification does not render the resultant commingled stream off-specification at the point of delivery to the shipper, nevertheless causes a difficulty. The input gas which fails to meet the input point specification will be blended back into a position of being able to meet the delivery point specification by the other gas in the pipeline, at no cost to the shipper responsible for the input of the off-specification gas. This blending uses up the inherent flexibility available in the pipeline to accept certain quantities of gas from time to time which do not meet the input point specification, which flexibility would otherwise have been available to the original shippers (e.g. in emergency situations). Paradoxically, notwithstanding the existence in the GTA of a strict specification for the entry of gas into the pipeline, the shipper might also require the transporter to be subject to a reasonable endeavours obligation to transport any gas which is delivered into the pipeline by the shipper which is off-specification. This obligation would be exercisable, for example, where the shipper’s gas is only marginally off-specification and could be blended back into the required delivery point specification by being commingled with other gas in the pipeline. 26-033 The transporter usually also undertakes to redeliver gas to the shipper at an agreed delivery point pressure, which should match the required delivery point pressure under the GSA. From the perspective of the GTA, in order for raw gas from a gas reservoir to get into the pipeline it must be delivered at the input point at a pressure which is at least equal to the existing pressure in the pipeline. If the pressure of the gas coming in at the input point is not high enough then the shipper will have to rely on compression to increase the pressure at the input point, and the installation of compression facilities will cost money. The shipper will therefore seek to set a threshold entry pressure, which it will have to meet in order to deliver its gas into the pipeline, as low as possible, and the transporter will undertake a pipeline operating pressure commitment in favour of the shipper. At the other extreme the transporter will want to ensure that the shipper does not deliver gas at such a high pressure that it will raise the pipeline pressure to a level such that other shippers’ gas cannot be delivered into the pipeline, or to beyond the pipeline’s safe operating pressure. End of Document

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Off-specification Gas, UKBC-GASLNGS 493298722 (2023)

Off-specification Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Off-specification Gas 26-034 The quality of gas which is delivered by the shipper to the transporter will be analysed at the input point in order to determine whether that gas meets the input point specification. The quality of gas which is redelivered by the transporter to the shipper at the delivery point will be analysed at the delivery point in order to determine whether that gas meets the delivery point specification. Off-specification gas could be put into a pipeline by a shipper at an input point, either with the consent of the transporter or without realisation by the transporter. Alternatively the transporter might accept gas into the pipeline from an input point, or from several input points, which becomes off-specification within a commingled gas stream. Off-specification gas could damage the pipeline and any ancillary facilities and could also have adverse consequences for the quality of a commingled gas stream in a multi-shipper pipeline. In the worst case the transporter might have to close down the operation of the pipeline in order that the off-specification gas can be evacuated and the pipeline cleaned. This will affect all shippers, who will suffer adverse economic consequences under any resultant GSA to which they might be party and/or from the potential shut-in of any associated liquids production (1-004). 26-035 The positions under the GSA in respect of prior knowledge of the prospective delivery of off-specification gas, the knowing taking of delivery of off-specification gas, the rejection and refusal to take delivery of off-specification gas and the unknowing taking of delivery of off-specification gas (see above) will be capable of broadly similar application in respect of the delivery of gas by the shipper at the input point and the redelivery of gas by the transporter at the delivery point, except that: (i)The determination of whether the transporter has absolute discretion to reject or is under a conditional obligation to take delivery of off-specification gas at the input point will typically be particularly negotiated. The transporter will typically assume no liability for its failure to take delivery of off-specification gas at the input point and will require full indemnification by the shipper in respect of any quantity of such gas which the transporter does take delivery of (whether knowingly or unknowingly). (ii)The typically low level of liability of the transporter for a failure to perform its obligations under a GTA (see above) could make it difficult for a shipper to adequately recover its losses against the transporter for an off-specification gas event which was caused by another shipper. Consequently it might be preferable if the gas transportation arrangements are set up with a zero tolerance for off-specification gas and for shippers to have direct rights of action against each other where the off-specification gas event is attributable to a shipper (which could be part of a wider set of pipeline system rules). Where under the GTA the transporter has an obligation to use reasonable endeavours to take delivery of off-specification gas at the input point and elects to do so, but that gas causes some loss of or damage to the pipeline, then the transporter should ensure that this election of the transporter does not vitiate any policy of insurance which the transporter might have effected in respect of the pipeline. End of Document

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1

Measurement, UKBC-GASLNGS 493298707 (2023)

Measurement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Measurement 26-036 Since the transporter will be liable to the shipper for a failure to deliver gas or for the delivery of off-specification gas, the transporter will typically require the right under the GTA to deliver determinative readings of gas quantity and quality, and to this end the usual provision in a GTA is that the transporter will at its own expense procure, install, operate and maintain an agreed range of equipment for the metering of gas quantity and the analysis of gas quality at the delivery point. The transporter will usually also provide measurement equipment at the input point, to preserve the integrity of the measurement function across the pipeline. Where the transporter has installed and is operating measurement equipment at the delivery point then the seller is unlikely to duplicate the transporter’s efforts under the GSA. Consequently the satisfaction by the seller of the measurement equipment obligations under the GSA could be secured by a pass through of the transporter’s obligations under the GTA (and so some coordination between the two agreements will be necessary). There will be an inevitable interface and overlap in the measurement regimes under the GSA and the GTA, illustrated by the following sequence: (i) Input point measurement. Gas will be measured at the input point in order to determine compliance by the shipper with the input point specification under the GTA. (ii) Delivery point measurement (transportation). Gas will be measured by the transporter at the delivery point in order to determine compliance by the transporter with the delivery point specification under the GTA. (iii) Delivery point measurement (sales). Gas will be measured by the seller at the delivery point in order to determine compliance by the seller with the delivery point specification under the GSA. End of Document

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Facilities and Commissioning, UKBC-GASLNGS 493298717 (2023)

Facilities and Commissioning Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Facilities and Commissioning 26-037 Where the transporter is building a new pipeline, the transporter may wish to have the shipper provide certain quantities of gas in order that the pipeline can be commissioned. Commissioning will not be relevant in respect of a pipeline which has already been built. The commissioning gas regime will be similar to that provided for under the GSA (23-006). Commissioning gas could be bought by the transporter from the shipper, in a manner similar to one of the options for the provision of fuel gas by the shipper to the transporter (28-010), or (less typically) could be provided by the shipper and held to the shipper’s stock account. Commissioning gas required by the buyer under the GSA will be transported through the pipeline and will be the subject of a tariff and/or capacity payment by the shipper in the ordinary way. Where under the GTA a shipper requires additional compression, capacity or processing facilities in order to meet the requirements of any downstream gas sales delivery point pressure, quantity or specification commitments to which it is subject where the shipper is the seller under a GSA then the transporter might argue that such additional facilities will be uneconomic to install and maintain without a contribution from the shipper, which could be reflected through increased tariff and/or capacity payments or through a one-off contribution to the incurred capital costs. A balance needs to be struck here in determining the level of that contribution: the shipper needs the facilities, but the transporter (and other suppliers) could benefit from having them, and although the transporter could own those additional facilities, it will also be subject to the costs of later decommissioning those facilities. End of Document

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1

Force Majeure, UKBC-GASLNGS 493298708 (2023)

Force Majeure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 26 - Gas Transportation Terms Force Majeure 26-038 A GTA will typically include some sort of force majeure provision (35-001). A right of the shipper to claim force majeure relief could give the shipper relief from its payment obligations under the GTA, although the GTA might specify that the shipper is still obliged to make some or all of the required payments notwithstanding the occurrence of the force majeure event, in the nature of an all events provision (35-003). This could be a requirement of the lenders where third-party financing has been utilised to fund the development of the pipeline (5-013). Whether this position applies equally to a claim for force majeure relief by the transporter will be a matter for negotiation. 26-039 There will be a close interplay between the force majeure provisions in a GSA and a GTA where the GTA is intended to service the GSA and a summary of the positions which can be taken when drafting force majeure provisions in the context of these two contracts might be helpful. This summary applies the hypothesis that the seller under the GSA has assumed responsibility for transporting gas to the delivery point and so will be the shipper under the GTA: (i) Force majeure relief under the GSA for the GTA. The seller will be keen to ensure that any inoperability of the GTA (whether or not that would amount to an event or circumstance of force majeure under the terms of the GTA) can readily be claimed by the seller as force majeure under the terms of the GSA, since the seller will not want to be in the position of not having gas transported to the delivery point under the GTA but not being relieved from a liability to the buyer under the GSA for a failure to deliver gas. The buyer under the GSA might, however, prefer that the seller can only claim force majeure relief in respect of the GTA if the reason for the inoperability of the GTA could validly be claimed as force majeure under the terms of the GSA, in order to protect the buyer from being subjected to the automatic application of potentially unattractive claims for force majeure relief under the GSA in respect of the GTA. (ii) Force majeure relief under the GTA for the GSA. The seller, in its capacity as the shipper under the GTA, will wish to secure under the GTA a wide right of force majeure relief in consequence of any inoperability of the GSA (whether attributable to the seller or the buyer) since the seller/shipper will not want to be in the position of having no revenue accruing from the buyer under the GSA but of still being obliged to make payments which might otherwise be due to the transporter under the GTA. Whether the transporter is willing to accept this downstream risk and threat to its revenue stream under the GTA will depend on the philosophy which the transporter has adopted for the operation of the pipeline. At the very least the transporter might require that the shipper can only claim force majeure relief in respect of the GSA under the GTA if the tests for the availability of force majeure relief under the GTA have been satisfied in respect of the events affecting the GSA for which force majeure relief is being claimed. End of Document

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1

Introduction, UKBC-GASLNGS 493298726 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 27 - Commingling, Allocation and Attribution Introduction 27-001 A pipeline might be designed for operation with a capacity sufficient only to transport the quantity of gas associated with a particular GSA and might be dedicated solely to the carriage of that gas for a single shipper. Alternatively a pipeline might be deliberately oversized at the outset with the intention that it is to be operated as a multi-shipper pipeline. It might also be that in respect of a pipeline intended for the transportation of gas for a specific shipper a quantity of ullage emerges during the lifetime of the pipeline (e.g. through a decline in the production of gas for the original GSA or the introduction of new gas compression facilities) such that the pipeline becomes able to accommodate the carriage of gas for other shippers. Where a pipeline is, or becomes, a multi-shipper pipeline there will inevitably be a commingling of gas from multiple input sources in that pipeline. This necessarily leads to a consideration of the principles of allocation and attribution, which ideally should be addressed before the pipeline begins to transport a commingled gas stream. The principles of commingling, allocation and attribution could be recited in a set of standard pipeline system rules with which all shippers are required to comply through formal adherence as a condition of execution of a GTA for the transportation of gas through the pipeline. These principles will become indispensable parts of any arrangement for the sale and transportation of gas where there is a commingled stream. End of Document

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Commingling, UKBC-GASLNGS 493298729 (2023)

Commingling Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 27 - Commingling, Allocation and Attribution Commingling 27-002 In any multi-shipper pipeline gas from more than one shipper is put into the pipeline and is thereafter mixed and transported by the transporter in a single, commingled stream. The commingled stream represents an accumulation of various gas ownership interests, aggregated by the transporter for the purpose of physically transporting that gas as a single unit. At the delivery point that commingled stream is redelivered from the transporter to the shippers, which could be done according to the individual portions of gas required by those shippers for further delivery by them to their gas buyers in their capacity as sellers under their GSAs. It is not possible at the delivery point to identify the exact molecules of gas which were delivered into the pipeline at the input point for transportation by a particular shipper. Rather, each shipper takes delivery of a defined portion of the commingled stream at the delivery point, where that portion is (or should be) equivalent to the amount of gas which was put into the pipeline at the input point by that shipper. In an ideal situation the position would appear as follows:

Where gas is transported in a commingled stream each shipper will be concerned to know that it will receive at the delivery point a quantity of gas equivalent to the quantity of gas which it originally put into the pipeline at the input point. This determination and distribution of individual interests within the commingled stream is effected by the process of allocation. End of Document

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Allocation, UKBC-GASLNGS 493298730 (2023)

Allocation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 27 - Commingling, Allocation and Attribution Allocation 27-003 Allocation is a mathematical arrangement which provides, in respect of a defined allocation period (which could be annual, monthly, daily or even hourly), for gas redelivered to the delivery point in a commingled stream to be allocated back on a proportionate basis to each input source of that gas. The allocation exercise can be carried out by reference to any combination of the volume, chemical composition or calorific content of the gas to be allocated and will take account of fuel gas consumption and lost gas in the pipeline, and also any changes in gas composition which might have taken place because of commingling. Allocation is carried out at the delivery point by the transporter on behalf of the shippers and ultimately, though not directly, for the benefit of the eventual buyers of gas delivered by the pipeline so that the performance of the seller under a particular GSA can be determined. There is no universally applied regime for allocation and in practice allocation will take place in the manner which best suits the particular requirements of the pipeline, the transporter, the shippers and their gas. In theory allocation could be effected by the application of general principles of applicable law which determine ownership interests in inter-mixed goods but most transporters and shippers will prefer an explicit allocation mechanism in the interests of greater legal, commercial and operational certainty. 27-004 The principle of allocation can be illustrated by a simple example, wherein as a starting point the aggregate quantity of gas (measured in volume terms) which is redelivered in a commingled stream at the delivery point exactly matches the aggregate quantity of gas which was put into the pipeline by the various shippers. Consequently the quantity of gas nominated by each buyer for delivery at the delivery point under its GSA (which, after all, gave rise to the need to deliver gas in the first place) is met: GSA BUYER’S NOMINATION

INPUT SOURCES OF GAS PER SHIPPER

DELIVERY POINT ALLOCATIONS OF GAS PER SHIPPER

DELIVERY POINT OFFTAKES OF GAS PER SHIPPER

UNDER / OVER DELIVERIES OF GAS PER SHIPPER

10

10

10

10

0

15

15

15

15

0

20

20

20

20

0

25

25

25

25

0

30

30

30

30

0

100

100

100

100

0

27-005

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Allocation, UKBC-GASLNGS 493298730 (2023)

In practice a shipper could fail to put into the pipeline the quantity of gas which is needed to be redelivered at the delivery point, or the shipper could put into the pipeline a quantity of gas which contains impurities which have to be removed. In either case there could be a resultant under-delivery of gas at the delivery point against that shipper’s requirements: GSA BUYER’S NOMINATION

INPUT SOURCES OF GAS PER SHIPPER

DELIVERY POINT ALLOCATIONS OF GAS PER SHIPPER

DELIVERY POINT OFFTAKES OF GAS PER SHIPPER

UNDER / OVER DELIVERIES OF GAS PER SHIPPER

10

10

10

10

0

15

0

0

0

-15

20

20

20

20

0

25

0

0

0

-25

30

30

30

30

0

100

60

60

60

-40

In this situation, if the shippers agree to this mechanism, an under-delivering shipper might be able to borrow a quantity of gas from an over-delivering shipper under an attribution mechanism (see below). There might also be a separate sub-allocation process by which the allocation exercise is carried out for a defined section of a pipeline; this will be particularly relevant where pipeline systems become physically more complex and form overall networks. The results of any sub-allocation exercises will be aggregated to provide the overall allocation result. Allocation relies for its effectiveness on the existence of effective gas metering at the points where gas is put into and taken out of the pipeline. At each input point gas will be metered to confirm the volume, composition and calorific content of the input source of gas before that gas from that source becomes part of a commingled stream. Correspondingly, by metering the commingled stream at the delivery point, which is typically done after processing of the gas and the removal of any impurities, it becomes possible to allocate to each input source of gas a proportionate part of the commingled stream. 27-006 An exception to the principle of allocation according to metered input quantities is the so-called “metering by difference” model. This typically applies to the first input source of gas into a pipeline, where no metering for allocation purposes would originally have been required since there were no other shippers in that pipeline and no commingled stream. As that pipeline develops into a multi-shipper pipeline that first shipper’s gas might remain unmetered and the quantity of gas allocated to that shipper at the delivery point would simply be determined as whatever is remaining after the allocation exercise had taken place in respect of all the other (metered) input sources. More usually, however, when a pipeline becomes a multi-shipper pipeline that first shipper would require the implementation of allocation metering and would sign on to a formal allocation arrangement in the interests of greater certainty for itself, the transporter and the other shippers. It is difficult to predict the operational lifetime of a pipeline and also to predict the periods when a pipeline might or might not be transporting a commingled stream. Consequently it would be unworkable for an allocation arrangement to have a finite term or to end without renewal when a pipeline ceases to transport a commingled stream for what might prove to be only a temporary period. The more typical existence of an allocation arrangement is that it will be in place for as long as a pipeline is transporting a commingled stream (which is usually expressed to be so until there has been a permanent cessation of the transportation of gas through the pipeline), with the participation of a shipper in that arrangement to be effective for so long as that shipper is having its gas transported in the pipeline as part of a commingled stream, even if that shipper is the only shipper, such that the allocation exercise becomes very simple. End of Document

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Attribution, UKBC-GASLNGS 493298725 (2023)

Attribution Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 27 - Commingling, Allocation and Attribution Attribution 27-007 “Attribution”, sometimes also called “substitution”, is the term given to the exercise whereby a prospective under-delivery of gas to a shipper at the delivery point which is evidenced by the allocation exercise is made good through the provision of additional gas belonging to another shipper. This is effectively borrowing and lending gas between shippers, often subject to certain limits and conditions (including periodic rebalancing), in the interests of ensuring that all of the shippers’ requirements are met at the delivery point. As with sub-allocation there may be an equivalent set of rules for sub-attribution. This could apply, for example, to attribution in respect of a distinct section of a pipeline or in respect of attribution between gas fields prior to the commingling of gas in the pipeline. If allocation can be described as the application of an objective set of mathematical principles to determine redelivered versus the input quantities of gas in a pipeline then attribution can be described as the subjective product of whatever commercial regime the shippers in a multi-shipper pipeline have agreed to institute between themselves in respect of under-deliveries and over-deliveries of gas which are evidenced by that allocation process. Allocation defines the shipper’s actual gas production and the under-delivery or over-delivery of gas at the delivery point; attribution adjusts and makes good the redeliverable quantity of gas to each shipper at the delivery point and defines the quantity of gas which is eventually delivered to a buyer under a dependent GSA. Allocation is an inevitable and customary mathematical consequence of the transportation of gas in a commingled stream but the existence of an attribution arrangement depends upon a specific and enforceable agreement being entered in between shippers whereby gas will be made available between themselves in order to make good any allocated under-deliveries. It is not always the case that an attribution arrangement will exist where there is an allocation arrangement, although it is more often than not the case that both will be found together. 27-008 The operation of an attribution arrangement can be illustrated by a continuation of the previous example: GSA BUYER’S NOMINATION

INPUT SOURCES OF GAS PER SHIPPER

DELIVERY POINT ALLOCATIONS OF GAS PER SHIPPER

DELIVERY POINT OFFTAKES OF GAS PER SHIPPER

UNDER / OVER DELIVERIES OF GAS PER SHIPPER

ATTRIBUTION BALANCE

10

10

10

10

0

0

15

0

0

15

-15

-15

20

20

20

20

0

0

25

0

0

25

-25

-25

30

70

70

30

40

40

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Attribution, UKBC-GASLNGS 493298725 (2023)

100

100

100

100

0

0

The foregoing example conveniently assumes that any under-delivery of gas by one shipper is fully covered by an over-delivery of gas by another shipper and that the process of attribution will balance out perfectly, such that the quantities of gas redelivered to the delivery point are in the aggregate sufficient to meet the aggregate of all the shippers’ requirements. It is more likely, however, that as a consequence of the delivery of gas from several input sources into a pipeline there could, as against the aggregate quantity of gas required to be redelivered at the delivery point and despite the process of attribution in respect of any potential under-deliveries, be an aggregate under-delivery of gas at the delivery point. The question to consider then is how this aggregate under-delivery is to be borne between the shippers. 27-009 Depending on what principle is recited in the allocation and attribution arrangements, the resultant under-delivery of gas could be left for the account of the shipper responsible for the under-delivery, or it could be shared between all of the shippers rateably or equally, or it could be shared between all of the shippers according to some predetermined order of priority. In most attribution arrangements there will be a running credit/debit balance between the shippers which is tracked over time and limits will usually be imposed on the extent of a shipper’s ability to borrow gas without making corresponding repayments. There will often also be an obligation to rebalance (in gas or cash) and maintain a zero attribution balance within defined periods of time. This could be part of a wider stock accounting regime. End of Document

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Introducing and Removing Parties, UKBC-GASLNGS 493298727 (2023)

Introducing and Removing Parties Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 27 - Commingling, Allocation and Attribution Introducing and Removing Parties 27-010 A multi-shipper pipeline is an asset which typically exists in a slow state of constant evolution. Over time existing shippers and input sources of gas could cease to be so and new shippers and input sources of gas could emerge to require transportation. Provision for these changes will need to be captured in the allocation and attribution arrangements. If a new shipper is admitted to a multi-shipper pipeline then it will be necessary to have that shipper sign on to the allocation (and any attribution) arrangements (typically through some form of deed of accession) and to consider the consequences of the admission of that shipper to the operability of the pipeline and to the interests of the other shippers. A new input source of gas represents change. The existing shippers will be keen to assess the reliability of that input source, since the extent of its prospective under-performance or over-performance will directly impact the allocated quantities of gas at the delivery point and the required operation of the attribution arrangements. The veto right of the existing shippers in this circumstance could be based on a requirement for unanimity of the shippers or there could be a voting passmark (to be determined by reference to numbers of shippers and/or percentage quantities of the total amount of gas which is being transported). This veto right could be expressed to be capable of exercise only in light of genuine operational concerns and not through commercial capriciousness, although this can be difficult to distinguish in practice. 27-011

The transporter and the existing shippers will have an equal interest in avoiding a wholesale renegotiation of the current allocation and attribution arrangements when a new input source of gas comes on stream for transportation but realistically it could also be necessary to make some minor adjustments (e.g. to intra-shipper borrowing and lending limits) in order to manage the introduction of the new shipper and input source. There will also be the need to manage the removal of an existing shipper from participation in the allocation and attribution arrangements when that shipper’s GTA comes to an end (which at a minimum will require the settlement of any outstanding attribution balances). End of Document

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Allocation and Attribution and the GSA, UKBC-GASLNGS 493298728 (2023)

Allocation and Attribution and the GSA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 27 - Commingling, Allocation and Attribution Allocation and Attribution and the GSA 27-012 There is a direct relationship between the application of the principles of allocation and attribution under the pipeline system rules (referenced through a GTA) and the interests of the parties under a GSA, in that the application of these principles could cause the seller under a GSA to be in default of its gas delivery obligations (e.g. through an under-delivery of gas resulting from certain allocations) and equally could save the seller from what would otherwise be such a default (e.g. through the attribution of gas to cover such an under-delivery). The buyer under a GSA may therefore be interested to know more about the allocation and attribution arrangements. That said, the transporter and the shippers within a multi-shipper pipeline will typically regard allocation and attribution arrangements as being an upstream province which should not concern the buyer. In the context of these arrangements the issue which typically arises for consideration is how they are referenced in the GSA and the rights of the buyer (if any) to observe or even to compel their exercise. Attribution rights benefit a seller under a GSA since that seller could borrow gas in the event of a prospective shortfall situation and so avoid whatever liabilities the GSA prescribes for the seller’s delivery failure (19-002), and since the seller could also borrow gas to meet its delivery commitments under the GSA whilst simultaneously closing down certain facilities for scheduled maintenance (24-002). By the same token, attribution rights could confer greater security of supply upon the buyer and yet attribution is typically described in the GSA as a right of the seller only; it is less commonly defined as an obligation of the seller, the exercise of which can be compelled by the buyer. 27-013 In the GSA it may be an express seller’s reservation (11-013) that the seller can commingle gas and can enter into allocation and attribution arrangements upstream of the delivery point, and so the possibility of these arrangements is at least recognised in the GSA. There could also be limits imposed by the buyer upon the seller in the GSA to the extent to which the seller, in its capacity as a shipper in the pipeline, can engage in attribution (both borrowing and lending) since the buyer will not want the seller to adversely affect the performance of the GSA. This is particularly so where gas is sold under a depletion-based contract (6-005), where the buyer will wish to ensure that the economically recoverable reserves of gas in the field are not irreparably depleted through lending gas without recovering the balance, since this might otherwise unfairly accelerate the arrival of the decline phase and might even trigger any economic termination rights which the seller might have. It will therefore be necessary for the seller to ensure that consistency is achieved in any limitations on the exercise of the attribution mechanism under the GSA and (as shipper) in meeting the obligations which that person has under any attribution arrangements. If, under the GSA, the seller delivers to the buyer at the delivery point a quantity of on-specification gas which meets the buyer’s nomination and meets any other requirements of the GSA then it should be of no concern to the buyer that the seller was potentially under-delivering gas to the buyer in consequence of the allocation arrangement and was able to make good that shortfall through reliance on an attribution arrangement. By the same token, if through the allocation arrangement there is an under-delivery of gas to the buyer which has not been made good through the attribution arrangement then the buyer should be able to rely on its rights under the GSA in respect of its seller’s default.

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Allocation and Attribution and the GSA, UKBC-GASLNGS 493298728 (2023)

In either case it should not be necessary for the buyer to access the allocation and attribution arrangements since the GSA adequately covers the buyer’s position. This is particularly so if the buyer has access to metering data at the delivery point, such that the extent of the seller’s performance (or non-performance) in the delivery of gas can be verified directly by the buyer. That said, the buyer could still have a desire for such access, to prove that the seller is fully applying all of its rights under the attribution arrangements in order to reduce the likelihood of shortfall as far as possible and to ensure that lending and borrowing limits are being adhered to and the full performance of the GSA is not being jeopardised. 27-014 If the seller recognises the principle that the buyer has a legitimate interest in observing the operation of the allocation and attribution arrangements then the next issue to address is how to accommodate that interest. The buyer might request that it becomes a direct signatory to the allocation and attribution arrangements and thereby secures direct access to all of the information associated with the process. On the other hand, other buyers of gas which is being delivered through a particular pipeline who are not party to the allocation and attribution arrangements may object to having a buyer, which after all could be one of their competitors in the downstream gas market, becoming a direct party to those arrangements, on the grounds that the signatory buyer will thereupon be able to discover commercially sensitive information such as the pattern of their nominations and the reliability of their sellers. The alternative for the seller therefore is to provide to its buyer in the GSA a right to periodically audit the exercise of the allocation and attribution arrangements, typically exercisable through an independent third party, where the auditor will be obliged to keep confidential any information which it discovers during the process of auditing the veracity of the arrangements which is not directly referable to the basic question of whether those arrangements have been operated fairly in respect of the buyer. The buyer might also require a specific undertaking from the seller that the seller will act in the best interests of the buyer in the seller’s exercise of its upstream rights, but the seller could be nervous of undertaking such a broad and generalised collateral commitment. 27-015 The foregoing analysis, related to keeping the buyer out of the seller’s domain, assumes a lack of connection between the parties. This analysis becomes more difficult to apply where the buyer is also part of the seller group, or is affiliated to the seller group. In this circumstance the buyer could have indirect but meaningful access to the allocation and attribution data and the effective separation of interests will require a careful contractual approach. 27-016 As a further consideration, although the principles of commingling, allocation and attribution are properly intended to apply between a transporter and shippers where there are several different input sources of gas and shippers in a single pipeline, some form of allocation exercise could also be helpful where an overall quantity of gas is sold by the same seller to the same buyer under several different GSAs. Where the buyer has contracted with the seller for the sale and purchase of gas through more than one GSA, where each GSA could have a different contract price and/or other commercial terms, the buyer will require that gas deliveries (or delivery failures) are properly recorded against the correct GSA since there may be a temptation for the seller to attribute a delivery failure to the GSA which gives the seller the least liability for that failure and to attribute deliveries of gas to the GSA which gives the seller the highest price. It will also be helpful for the buyer to monitor how gas reserves are being produced where a GSA is a depletion-based contract, to ensure that depletion is being properly applied against the correct GSA. In this situation the application of an allocation-based exercise could enable the buyer to identify the source of a particular quantity of delivered gas against the buyer’s respective nominations, such that the performance of each GSA can be analysed individually and is not aggregated with any other GSAs. The buyer could argue that it should be made party directly to the upstream allocation arrangements. This might not be tenable from an operational perspective and alternative arrangements might be required which achieve a similar result for the buyer, although there will not be a concern in respect of the interests of other buyers. End of Document

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Introduction, UKBC-GASLNGS 493298734 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Introduction 28-001 Of at least equal importance to owning the pipeline is the gas-carrying capacity of the pipeline and the value which that capacity represents. The GTA should make provision for the basis upon which that capacity can be reserved by a shipper. That capacity can also be a tradeable commodity if the terms of the GTA allow. A GTA could also regulate the provision of linepack, linefill and fuel gas by a shipper. End of Document

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Quantity and Capacity Mechanisms, UKBC-GASLNGS 493298733 (2023)

Quantity and Capacity Mechanisms Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Quantity and Capacity Mechanisms 28-002 Gas transportation arrangements are popularly characterised by reference to the following models: (i) Quantity transportation. This is a quantities-based contract for the transportation of gas in the classical sense of an agreement between the transporter and the shipper whereby the pipeline is used for the transportation of a nominated quantity of gas for the shipper between specific points on the pipeline, with certain liabilities for, and rights of relief to, the transporter if any part of that quantity of gas is not transported. The shipper will pay a tariff to the transporter according to the quantity of gas which the shipper delivers into the pipeline for transportation. The shipper might also undertake a ship or pay commitment in support of that tariff obligation. (ii) Capacity reservation. This formulation connotes a capacities-based contract (sometimes also called an “advanced capacity reservation agreement” (ACRA)) between the transporter and the shipper for the reservation in the shipper’s favour of an agreed level of capacity in the pipeline, with the shipper being obliged to pay a capacity payment for that reserved capacity whether it is used or not and irrespective of the quantity of gas which is actually transported (up to the level of the reserved capacity). The capacity reservation model typically does not impose a ship or pay commitment on the shipper because the transporter’s guarantee of revenue is assured by the shipper’s obligation to make the capacity payment, irrespective of the shipper’s actual usage of the pipeline. The reality of gas transportation arrangements is that they often represent a hybrid form of each of these models and an examination of the substance of an arrangement is more important than its form. End of Document

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Reserved Capacity, UKBC-GASLNGS 493298738 (2023)

Reserved Capacity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Reserved Capacity 28-003 At the heart of any GTA will be a mechanism for determining the amount of capacity which is reserved for the transportation of the shipper’s gas. This will form the basis of the transporter’s transportation obligation and the shipper’s ship or pay commitment in a quantities-based contract, and the shipper’s capacity payments obligation in a capacities-based contract. In an entry-exit pipeline system the pipeline user books input point capacity rights in the pipeline at one point and books corresponding exit capacity rights at an offtake point in the pipeline. These are essentially matched drawing rights, and constitute the pipeline as a virtual market-place. In a point-to-point pipeline system (25-002) the pipeline user books capacity in the pipeline for the transportation of a defined quantity of gas between the input point and the offtake point. The transporter’s desire is to have the pipeline’s capacity fully utilised (and paid for) and consequently the transporter will seek firm and predictable capacity reservation, without undue volatility in the shipper’s requirements. Where the shipper is also the seller under a GSA the shipper should ensure that the reserved capacity is sufficient to accommodate the gas quantities requirements of its gas sales arrangements, and so, for example, would be able to react to where there is a corresponding reduction of the gas quantities under the GSA, and also to handle the expected production of gas for the life of its gas field and any anticipated variances in production rates. There could be a procedure in the GTA for varying the reserved capacity as the rate of production from a gas field varies over time. 28-004 The transporter will see a reduction in the flow of revenue from the shipper in consequence of a reserved capacity reduction, however, and so might require that the shipper’s reservation of capacity in the pipeline is absolute and is not affected by whatever happens under the GSA, although the transporter might be more sympathetic to a reduction in the reserved capacity based on the physical performance of (rather than economic demand for) the shipper’s gas field. The GTA might also provide a mechanism whereby any reserved capacity which the shipper is unable to utilise (whether temporarily or permanently) can be surrendered back to the transporter, or could be taken over by the transporter (at the transporter’s option). Alternatively the shipper might sub-let any unutilised reserved capacity to a third party. Any quantities of gas utilised by the transporter or so transported on behalf of such a third party could count towards satisfaction of the shipper’s ship or pay commitment. In an attempt to lessen its liability to pay a capacity payment or to secure a lower ship or pay commitment the shipper should not try to reserve lower levels of capacity and hope to make good the obligation to transport gas to meet the requirements of a GSA by overtaking gas at the delivery point (11-002) or by relying on the protections afforded by attribution (27-007). 28-005 Several issues typically arise for consideration in the context of reserved capacity: (i) Tradeable capacity. The GTA might allow the shipper’s reserved capacity to be freely tradeable by the shipper, subject to notification to the transporter, which could give rise to a pipe within a pipe situation (25-019) or the GTA might provide that the reserved capacity is available only for use by the shipper and cannot be traded or otherwise transferred. Preventing the trading of unused capacity under the GTA could, however, be incompatible with applicable competition law principles (Ch.7).

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Reserved Capacity, UKBC-GASLNGS 493298738 (2023)

(ii) Priority access to incremental capacity. From time to time there may be incremental capacity in the pipeline, arising for example through the addition of gas compression facilities which increase the pipeline’s capacity, the availability of reserved capacity which has been released by another shipper or the increase in pipeline capacity through looping (25-020). A shipper might require the transporter to give priority access to the shipper in respect of that incremental capacity. A founding father in respect of the pipeline (see below) might also have an expectation of preferential rights to pipeline capacity. Whether this can be agreed will be the subject of commercial negotiation between the shipper and the transporter, except that the notion of priority access rights could be inconsistent with applicable competition law principles. (iii) Restoring lost capacity. Where the shipper has reduced its reserved capacity in accordance with the terms of the GTA the shipper might request a priority right for the restoration of that reduced capacity. This would apply for example where the shipper caused a reduction in the reserved capacity because of a corresponding DCQ reduction under the GSA, which has been restored under the terms of the GSA. It may be, however, that in practical terms that capacity reduction has been taken up by another shipper and is simply unavailable for restoration. A priority right of access for the restoration of that reserved capacity might also be inconsistent with any applicable competition law principles. The production profile for an associated gas field (1-004) can present particular difficulties in reserving pipeline capacity. Apart from the general issue of reserving capacity for gas whose production depends on the vagaries of the production of the associated liquids, the production of gas (and so the reservation of capacity) typically reduces towards the end of the life of the field containing the associated liquids as the associated gas is increasingly reinjected into the field in order to maintain reservoir pressure and the production of the remaining associated liquids. At the end of the field’s life the production of the reinjected gas can be ramped up as the field is blown down prior to the end of all production, which will require an increase in the reserved capacity. This can lead to an overall gas production profile which requires significant flexibility from the transporter in the reservation of capacities. Similar issues could arise in consequence of the transportation of unconventional gas (Ch.4). End of Document

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Nominations and Variations, UKBC-GASLNGS 493298731 (2023)

Nominations and Variations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Nominations and Variations 28-006 In a quantities-based contract there will usually be detailed operational procedures for notifying the quantities of gas to be delivered by the shipper at the input point for transportation in the pipeline on a day, to be taken delivery of by the shipper at the delivery point and regulating the extent to which the shipper can vary the rate of delivery of gas into, or the taking of delivery of gas from, the pipeline during a day. The transporter could also undertake reasonable endeavours obligations to take delivery of at the input point and/or to redeliver at the delivery point any quantities of gas in excess of the shipper’s nominated quantity (which might be charged for at a premium). This is similar to excess gas requests made under a GSA (12-014). Where the shipper is also the seller under the GSA then the shipper will require that these procedures are, to the greatest possible extent, made consistent with the corresponding requirements of the GSA. If, for example, the shipper is selling gas under the GSA to a buyer for consumption in a gas-fired power plant then the shipper will want to ensure the maximum possible flexibility in deliveries in order to match the requirements of the plant, which may vary during the course of a day according in turn to the demands of the electricity market. In contrast, however, the transporter might wish to maintain an even flow of gas through the pipeline during the day and so may be unable to accommodate the shipper’s required flexibility. Access to gas storage could provide some of the flexibility which the shipper requires. The nominations and variations regime under the GTA will adopt similar principles of operation as the nominations and variations regime under the GSA (Ch.18), including provisions relating to the format and mechanism of nominations and variations notices, good faith nominations and forecasts. The nominations and variations regime might be set out in the GTA. Alternatively the regime could be set out in any pipeline system rules where the pipeline is operated as a multi-shipper pipeline (25-020). End of Document

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Priorities and Reductions, UKBC-GASLNGS 493298737 (2023)

Priorities and Reductions Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Priorities and Reductions 28-007 The provisions regulating the distribution of capacity reductions between shippers in the event of a reduction in the pipeline’s capacity (at the input point and/or at the delivery point) will be of particular importance to a shipper. Such reductions could be effected by the transporter’s application of interruption rights. Interruptible shippers will usually be interrupted first. Where a further reduction of capacity is still needed then any excess reserved capacity of a shipper (that is, any incremental capacity reserved to a shipper which is in excess of that shipper’s firm reserved capacity) could next be reduced. As between all the firm shippers, in some GTAs the rule of priority between shippers is based on the date of accession of the shippers to the transportation of their gas through the pipeline (i.e. first come first served, sometimes called a “founding father right”, which benefits particularly the transporter where the pipeline is used to transport the transporter’s equity gas from the outset of the pipeline’s life). Alternatively the GTA might provide for equal priority between all shippers at any time, such that all shippers suffer a capacity reduction proportionately (that is, according to their reserved capacities). Perhaps the most favourable approach from a shipper’s point of view, apart from being given absolute priority, is to have equal priority with existing shippers in the pipeline and to take priority over later-joining shippers. If it can be shown that the reduction in pipeline capacity was caused by one of the shippers, however, then that shipper could suffer a capacity reduction first, before the other shippers have their capacity reduced. A shipper might reserve in the GTA a right to appoint an independent auditor in respect of the transporter’s allocation of capacity reductions, to ensure that such reductions have been properly carried out in accordance with the requirements of the GTA. End of Document

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Linepack, UKBC-GASLNGS 493298732 (2023)

Linepack Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Linepack 28-008 The quantity of gas in a pipeline which can be called upon to meet the individual and the aggregate delivery point demands of a shipper and of all the shippers at the delivery point without increasing the input of gas at the input point is called “linepack” (sometimes also called “residence gas”). Linepack is the positive difference between the input to and the offtake of gas from the pipeline on a shipper-by-shipper basis, and each shipper could have an individual linepack account which reflects its input and offtake gas quantities. Linepack in the aggregate in the pipeline will be subject to limitations in the interests of ensuring that the pipeline’s safe operating pressure range is maintained. To this end the transporter could need to make good any imbalances between the shippers by, for example, restricting input quantities where the offtake of gas is not reciprocal. The transporter might also have emergency powers to balance the individual shippers’ linepack accounts in the pipeline (and the aggregate linepack position in the pipeline), through the purchase of gas from a third party to make good a shipper’s under-delivery of gas at the input point or through a forced sale of a shipper’s gas where the shipper does not take delivery of gas at the delivery point or over-delivers gas at the input point. End of Document

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Linefill, UKBC-GASLNGS 493298736 (2023)

Linefill Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Linefill 28-009 There will need to be a minimum quantity of gas in the pipeline at the commencement of the operation of the pipeline in order to enable the transporter to properly operate the pipeline. The provision of this linefill (sometimes also called “fixed pipeline stock” or “initial fill”) is typically an obligation of the transporter. There are two options in particular for the provision of linefill: (i) Securing linefill from the shipper. The shipper might be required to submit a quantity of gas for input into the pipeline for use by the transporter as linefill as a condition of becoming a shipper. Where more than one shipper uses the pipeline then linefill would be contributed in proportion to the reserved capacities of the shippers in the pipeline (whether initially or subsequently) and a subsequent contribution of linefill by another shipper should lead to a proportionate refund of linefill to the original shipper. This quantity of gas (although not the exact molecules) will remain in the pipeline and will be held by the transporter for the account of the shipper. Tariff and/or capacity payments should not be payable by the shipper on linefill. Upon the termination of its GTA the shipper should be entitled to recover from the transporter the quantity of gas held in that shipper’s linefill account, possibly with a cash-out (at an agreed price) to the shipper if the linefill cannot be returned. This might require the other shippers to make up the withdrawn linefill in proportion to their respective reserved capacities. To track each shipper’s linefill entitlement the transporter might operate a form of stock accounting, akin to linepack accounting (see above). (ii) Specific sale of linefill by the shipper. The GTA might provide that the transporter will purchase from the shipper a quantity of gas which will be retained in the pipeline as linefill by the transporter. This linefill quantity of gas will belong to the transporter and will not be returnable to the shipper. Tariff and/or capacity payments should not be payable by the shipper on such linefill gas since that gas is being sold to the transporter at the input point rather than being transported in the pipeline on behalf of the shipper. End of Document

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Fuel Gas, UKBC-GASLNGS 493298735 (2023)

Fuel Gas Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 28 - Quantity and Capacity Constructions Fuel Gas 28-010 Where the pipeline has gas compression facilities in place and/or where the transporter needs to heat the gas in order to meet the delivery point quality specification the transporter could use gas (mixed with filtered, compressed air) as fuel for those compressors and/or heaters, and gas could also be required as fuel for various production platform operation and processing functions. The provision of this fuel gas is typically an obligation of the transporter. There are several ways in which the transporter might procure such fuel gas: (i) Specific sale of fuel gas by the shipper. The GTA might provide that the shipper will deliver at the input point such quantities of gas as the transporter might notify its need for as fuel gas, whereupon the transporter will pay an agreed fuel gas price upon receipt of an invoice from the shipper and title to that fuel gas will pass to the transporter. Tariff and/or capacity payments (Ch.29) should not be payable by the shipper on fuel gas since that gas is being sold to the transporter rather than being transported in the pipeline on behalf of the shipper. (ii) Generic purchase of fuel gas by the transporter. The transporter might arrange for the purchase of gas from non-specific sources for use as fuel gas, and could add the costs of that gas purchase into the quantification of the tariff and/or capacity payments payable by the shipper. The GTA will ordinarily make no specific reference to fuel gas in this instance. The shipper will be keen to ensure that the purchase of fuel gas in this circumstance is made via an arm’s length transaction for a fair market value, to prevent the transporter from buying fuel gas from an affiliate at an inflated price and passing that cost back to the shipper in an inflated tariff and/or capacity payments. A structure for published and regulated tariff and/or capacity payments in respect of a pipeline as a consequence of certain regulatory principles could prevent the transporter from engaging in such behaviour. (iii) Consumption and treatment as shortfall gas. The transporter might take delivery of a quantity of gas from the shipper at the input point and elect to consume it as fuel gas and to be liable to the shipper for whatever remedy the GTA prescribes for lost gas in respect of that quantity of gas. This is somewhat unpredictable for the shipper, however, and could place the shipper as seller in unrelieved default under the GSA. Consequently the shipper would usually prefer the principle of a specific sale of fuel gas. (iv) Fuel gas as an operational loss. The GTA might provide an operational tolerance for lost gas which in practice will be applied by the transporter to the non-redelivery of gas at the delivery point which is used by the transporter as fuel gas. The shipper might prefer an explicit fuel gas regime, however, rather than this systemic, irrecoverable loss of certain quantities of its gas in the pipeline. End of Document

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Introduction, UKBC-GASLNGS 493298741 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 29 - Tariff, Capacity Payments and Ship or Pay Introduction 29-001 Of central importance to the GTA, the negotiation of the level of the tariff and/or capacity payments payable by the shipper to the transporter will often be instrumental in determining the availability of other commercial terms in the GTA in a manner similar to the determination of the contract price under the GSA. A ship or pay commitment often underpins a tariff payment obligation on the part of the shipper. The transporter could require the shipper to enter into a ship or pay commitment as part of the GTA, but not so where a capacities-based contract is relied on between the parties. End of Document

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Tariff and Capacity Payments, UKBC-GASLNGS 493298743 (2023)

Tariff and Capacity Payments Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 29 - Tariff, Capacity Payments and Ship or Pay Tariff and Capacity Payments 29-002 In a quantities-based contract (28-002) the shipper could pay a defined fee (the tariff) based on quantities of gas nominated for delivery by the shipper at the input point, or based on quantities of gas redelivered by the transporter at the delivery point, or based on a combination of these input point and delivery point quantities. From this it will be apparent that the transporter will earn no tariff income if the shipper inputs no gas for transportation through the pipeline and consequently a tariff mechanism will typically also be underpinned by a ship or pay commitment (see below) in order that a revenue stream is guaranteed in favour of the transporter. In a capacities-based contract the shipper will make payment to the transporter for capacity which is reserved in the pipeline. This capacity payment is generally made regardless of whether the reserved capacity is actually utilised by the shipper. The absolute obligation of the shipper to pay the capacity payments will obviate the need for the transporter to secure the additional commitment of a ship or pay mechanism. The revenue payable by the shipper to the transporter under the GTA could also be based on a combination of a capacity payment in respect of reserved capacity and a tariff in respect of any quantities of gas which are actually transported. The AIEN GTA (6-002) provides for the payment by the shipper of a fixed monthly transportation charge which is calculated on the basis of a defined monthly nominated quantity of gas multiplied by a defined tariff. 29-003 The transporter might also impose different tariff and/or capacity payment levels for different aspects of the transportation services; a shipper might prefer to pay on a component basis because it may be concerned that it is disadvantaged by paying a single, bundled amount for services which it might not require the complete provision of. There might also be a bespoke payment structure for individualised services such as the transportation of gas in excess of the shipper’s nominated quantity or the processing of off-specification gas in certain circumstances. The transporter might also be content to accept gas from the shipper as a fee in kind in satisfaction (in whole or in part) of tariff and/or capacity payment which would otherwise be payable in cash. The shipper will require a tariff and/or capacity payment to be set at a level which is not so high as to have a material adverse impact on the economic value of the overall gas project from the shipper’s perspective. Consequently the basic aim of the shipper will be to secure the lowest possible levels of tariff and/or capacity payment in consideration of the provision of the transportation services by the transporter. 29-004 From the transporter’s perspective the tariff and/or capacity payment should permit the recovery of three components: (i) Infrastructure costs. A contribution to the capital costs of the transporter’s pipeline and ancillary facilities. (ii) Operating costs

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Tariff and Capacity Payments, UKBC-GASLNGS 493298743 (2023)

The operating costs incurred by the transporter which are associated with the provision of the transportation services to the shipper. (iii) Expected return. The required element of profit on the business of transporting gas, since the transporter will expect to do more than simply recover its capital and operating costs. Despite these elements the tariff and/or capacity payments will typically be expressed as a single figure, payable as an amount which reflects the quantity of gas transported or the amount of capacity reserved. The costs under item (i) above might be met by the transporter directly or might be met by third party lenders to the transporter (25-007), in which case the lenders will be keen to ensure that the tariff and/or capacity payment will be adequate to provide the necessary level of debt service coverage for the outstanding duration of the loan. Where such costs have been met by lenders the return which the transporter can expect under item (iii) above will be largely subordinated to the lenders’ recovery. As is the case with the payment of the contract price under the GSA, lenders who have financed the transporter’s construction of the pipeline and any ancillary facilities will require a first call on the tariff and/or capacity payments. The tariff and/or capacity charge will, when paid periodically, typically be disbursed according to a particular hierarchy (often called the “payment waterfall” or the “waterfall”), wherein the operating and maintenance costs of the pipeline are met first, before payments are made to service the debt (interest and principal) in favour of the lender. Tariff and/or capacity payments might be the subject of regulatory control, particularly in the case of a pipeline regime with published access rights for third parties (7-009), and consequently the level of the tariff and/or capacity payment might not be freely negotiable between the shipper and the transporter. 29-005 The transporter might require an absolute obligation of the shipper to pay the tariff and/or capacity payments during any period which might be claimed by the shipper as entitling force majeure relief from its obligations. The transporter might argue for this position because the transporter’s low rate of return on the provision of the transportation services should not be further reduced by a cessation of the shipper’s payment obligations (for whatever reason). The tariff and/or capacity payments could be fixed for the duration of the GTA but the transporter might be concerned that a fixed tariff and/or capacity payment in a long-term GTA might eventually fall behind what it should be relative to market conditions. Whilst it is rare (but not unheard of) to find a tariff and/or capacity payment which is adjusted by indexation in a manner similar to the complexity of price indexation in a GSA (13-006), the GTA might at the very least index the tariff and/ or capacity payment against a more general index, such as inflation. A shipper might be concerned that it is not paying a tariff and/or capacity payment which is higher than the tariff and/or capacity payment payable by another shipper, such that the first shipper is effectively subsidising the other shipper. To this end the shipper could require tariff and/or capacity payment transparency for all shippers, which could exist within a highly regulated regime and which might also be secured by the shipper’s securing a most favoured nation provision (13-014) from the transporter in the GTA in order to protect the shipper’s position. The AIEN GTA provides for such a right in the shipper’s favour. 29-006 There are several options for structuring the tariff arrangements in a GTA: (i) Postage stamp tariff. Under this tariff construction the transporter charges a flat rate tariff according to the quantity of gas which is transported on behalf of a shipper, where the tariff is the same for all shippers irrespective of the distances over which gas is transported in the pipeline and irrespective of the location of the points of entry into and exit from the pipeline. Accordingly, at least to a shipper requiring transportation of gas over short distances, this model unfairly prejudices such a shipper in comparison with a shipper transporting gas over greater distances, which pays the same tariff but for a greater transportation service. (ii) Distance tariff. In particular contrast to the postage stamp tariff, under this tariff construction the transporter charges a tariff which relates directly to the distance over which a quantity of gas is transported on behalf of a shipper (determined according to the

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Tariff and Capacity Payments, UKBC-GASLNGS 493298743 (2023)

location of the points of entry into and exit from the pipeline). Consequently, a short-distance shipper pays a lower aggregate tariff than a long-distance shipper, which receives a greater transportation service in consideration of the correspondingly greater tariff which it pays. (iii) Zonal tariff. This tariff construction is a variant of the distance tariff. The transporter charges a particular tariff for a particular section (or zone) of the pipeline through which the shipper requires gas to be transported (determined according to the location of the zonal points of entry into and exit from the pipeline). (iv) Entry and exit point fee. A shipper is charged an entry fee at the input point and is charged an exit fee at the delivery point. (v) Interruptible payments. The GTA might provide that a discounted tariff is payable by a shipper which is the subject of an interruptible gas transportation arrangement (25-024), in consideration of the lesser certainty of the transportation service which such a shipper receives compared to a firm shipper. (vi) Thermal or volumetric payment. A tariff might be determined by reference to the volume of gas to be transported or in respect of the calorific value (1-009) of that gas (where the calorific value will be in a range, effectively giving a floor value). Capacity payments under the GTA might similarly be calculated by the transporter according to the equivalence of postage 29-007 stamp, distance or zonal tariff principles, could also be discounted to account for interruption rights in favour of the transporter and could be set by reference to the reservation of volumetric or thermal capacity in the pipeline. The tariff will usually be determined between the transporter and the shipper independently of the determination of the contract price under a GSA (10-005) which the GTA is intended to service. In some formulations, however, the shipper under the GTA which is also the seller under the GSA might be nervous of an economic decoupling of these regimes through a falling contract price in the GSA and a fixed tariff under the GTA, and so the shipper/seller might wish to express the tariff payable under the GTA as a percentage of the contract price. The transporter could be reluctant to accept such a pass-through of potential price volatility under the GSA, however. Similar provisions could apply in respect of the determination of a capacity payment. End of Document

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Overrun Charges, UKBC-GASLNGS 493298739 (2023)

Overrun Charges Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 29 - Tariff, Capacity Payments and Ship or Pay Overrun Charges 29-008 The GTA might oblige the shipper to pay an overrun charge, so that if the shipper causes the transportation of a quantity of gas which is greater than an applicable nominated quantity by overrunning the shipper’s nominated quantity at the input point, or causes or permits a taking of delivery of gas at the delivery point which is greater than the shipper’s entitlement, then the shipper is obliged to pay to the transporter a premium for that greater quantity of gas. This is akin to an overtake provision in respect of the buyer under a GSA (18-013) and assumes that the transporter has anything other than complete control of the flow and/or differential pressure of gas at the input point and/or the delivery point. Overrun could occur because of an act or omission of the shipper, or it could be caused by an overtake by the buyer under the GSA where the gas reception facilities at the delivery point are configured such that the buyer can effect an overtake (and so cause the shipper to effect an overrun). Where the overrun under the GTA has been caused by an overtake under the GSA then the shipper (as seller) should require a reciprocal overtake provision under the GSA, to pass through the residual liability under the GTA. End of Document

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Ship or Pay, UKBC-GASLNGS 493298740 (2023)

Ship or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 29 - Tariff, Capacity Payments and Ship or Pay Ship or Pay 29-009 In order to guarantee to the transporter a minimum level of income in recoupment of its capital investment in the pipeline and any ancillary facilities, the shipper could be required to pay for the transportation of a defined base quantity (the ship or pay quantity) of gas over a defined period of time, whether or not the shipper actually inputs that quantity of gas for transportation. Ship or pay is effectively a minimum capacity payment which is payable by the shipper in exchange for guaranteed capacity in the pipeline and the guaranteed provision of transportation services (and in that sense ship or pay is synonymous with a capacity payment). It will be apparent that the ship or pay commitment under the GTA is akin to the take or pay commitment under the GSA (16-004) and consequently several common components will arise for consideration (assuming an annually-based obligation): (i) The annual ship or pay quantity. The shipper will agree to input to the pipeline for transportation and to pay for, or to pay for if not input to the pipeline for transportation, a specified minimum quantity of gas during each year (the annual ship or pay quantity (ASOPQ)), which could be set as a defined percentage of the shipper’s capacity which is reserved in the pipeline for that year. (ii) Adjustments. The ASOPQ will be qualified by a series of adjustments for gas quantities which the shipper was unable to input to the pipeline for transportation or which the transporter was unable to transport, including for reasons of force majeure or for gas not redelivered at the delivery point by the transporter which falls within the definition of lost gas or which was not input for delivery or redelivered because of scheduled maintenance or a permitted interruption. In some circumstances the shipper might seek an adjustment for equivalent disruptions under the GSA (where the shipper is also the seller) but the transporter may be reluctant to accept such a pass-through of risks from the GSA. An adjustment for carry forward (see below) will in particular need to be negotiated. (iii) The annual deficiency and the ship or pay payment. In the event that the shipper does not in any year input to the pipeline for transportation a quantity of gas equivalent to the ASOPQ then the shipper will be obliged to make a ship or pay payment to the transporter, based on the deficiency in the quantity of gas which was input for transportation (if any) versus the ASOPQ, multiplied by the applicable tariff (see above). 29-010 The principles of whether under a GSA the take or pay commitment constitutes a penalty (16-010) and the continuing rationale for take or pay (16-012) could be applied equally in respect of the ship or pay commitment. Care needs to be taken with how the shipper’s ship or pay commitment is determined, according to the shipper’s ability to deliver gas into the pipeline for transportation and/or to take redelivery of that gas from the pipeline. If the ship or pay commitment is determined by reference to gas which the shipper delivers to the pipeline at the input point then any capacity constraint within the pipeline which prevents the shipper from delivering gas will cause the shipper to accrue a

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Ship or Pay, UKBC-GASLNGS 493298740 (2023)

ship or pay payment obligation (subject to relief through the appropriate adjustments). Similarly, if the ship or pay commitment is determined by reference to gas which the shipper takes delivery of from the pipeline at the delivery point then any capacity constraint within the pipeline which prevents the shipper from taking delivery of gas will cause the shipper to accrue a ship or pay payment obligation (subject to relief through the appropriate adjustments). Some commentators argue that a shipper’s ship or pay commitment which is determined by reference to gas which the shipper takes delivery of from the pipeline at the delivery point exposes the shipper to the risk that the transporter could fail to make gas available to the shipper at the point of redelivery, thereby exposing the shipper to a ship or pay payment obligation through no fault of its own. The suggested solution to this risk is to have the shipper’s ship or pay commitment set by reference to gas which the shipper inputs into the pipeline for delivery. This analysis ignores, however, the fact that the GTA should contain an adjustment to the ASOPQ which caters for the transporter’s failure in this regard, and so protects the shipper. In order to ensure the accurate determination of a shipper’s true ship or pay commitment there will need to be in place an accurate system of linepack and shipper’s gas stock accounting. The combined reconciliation of gas input by the shipper, gas offtake by the shipper and the use of linepack entitlements by the shipper to balance either component will be key in determining the shipper’s performance against its annual ship or pay commitment. End of Document

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Make Up and Carry Forward, UKBC-GASLNGS 493298742 (2023)

Make Up and Carry Forward Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part C - Gas Transportation Chapter 29 - Tariff, Capacity Payments and Ship or Pay Make Up and Carry Forward 29-011

The shipper might regard as iniquitous the situation where the shipper has made a ship or pay payment but has not used its reserved capacity in the pipeline, and in furtherance of the suggestion that a ship or pay payment equates to a take or pay payment the shipper might argue for an equivalence of make up rights (17-002). Make up rights are sometimes thought of as being harder to reconcile within a ship or pay regime and a gas pipeline than is the case for a gas sale. In contrast to the take or pay commitment, where the gas which the buyer elected not to nominate for delivery should remain available to the buyer for subsequent delivery, any part of the reserved capacity which is unused by the shipper on any particular day will be irrecoverable; in the case of gas, the commodity remains available for subsequent recovery (subject to the availability of gas reserves capable of production and to any transportation constraints) but in the case of capacity in a pipeline that commodity does not. The best illustration of this principle is the capacity reservation model for gas transportation, where pipeline capacity is booked but with no later right of recovery of unutilised capacity in the shipper’s favour. The shipper might suggest that a make up right can be achieved through provision that a ship or pay payment made in one year should lead to a discount against the tariff or an adjustment to the ship or pay quantity for the next year, but the transporter may be unwilling to see the next year’s revenues from the pipeline reduced because of the shipper’s election not to input gas into the pipeline for transportation in a preceding year. The AIEN GTA (6-002) provides for a limited make up right in the shipper’s favour, allowing the within-year provision of zerotariff transportation services to the shipper from the transporter in the remainder of a contract year once the shipper has paid for the transportation of a quantity of gas equivalent to the ASOPQ for that contract year. This sounds simple enough but the effectiveness of such an arrangement depends on how the ASOPQ is calculated in a manner equivalent to the determination of the make-up gate in a GSA (17-008).

29-012 Consequently the shipper should do all it can to reduce its exposure to make a ship or pay payment. Apart from the obvious remedy of transporting gas in the pipeline which would count towards the ASOPQ, where the shipper is not in a position to transport gas and no relief through an adjustment to the ASOPQ is forthcoming then the shipper might consider the following: (i) Third party gas transportation. The shipper might transport third party gas (where the GTA allows the shipper to sub-let its pipeline capacity—25-019), which could count towards satisfaction of the shipper’s ship or pay commitment or for which the shipper will receive an amount of payment from that third party which could be used to defray the shipper’s commitment to the transporter. (ii) Gas transportation by the transporter. Where the GTA allows the transportation of gas by the transporter which utilises any reserved capacity of the shipper which is unutilised then the shipper could require that any quantities of gas which are so transported will count towards satisfaction of the shipper’s ship or pay commitment. (iii) Relating the commitment to the gas sales arrangements.

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Make Up and Carry Forward, UKBC-GASLNGS 493298742 (2023)

Where the operating philosophy of the pipeline is that it is intended to be a vehicle for the successful performance of an underlying GSA (25-022) the shipper might contend that its obligation to make a ship or pay payment should apply only to the extent that the shipper, in its capacity as the seller under the GSA, has received a take or pay payment from the buyer, on the basis that the shipper is not shipping gas because the buyer is not taking delivery of gas, and so the transporter should recognise this risk and become party to it. This would reduce the shipper’s exposure to the risk of making a ship or pay payment under the GTA where gas has not been transported but the shipper is not receiving corresponding revenue under the GSA. The transporter may be unwilling to accept this risk however. 29-013 The shipper might also require a carry forward right (in a manner akin to carry forward under a GSA, to apply where in respect of a contract year the shipper has transported (and has paid for the transportation of) a volume of gas in excess of the ASOPQ for that contract year. This right, if it is agreed to by the transporter, would become an additional adjustment to the ASOPQ for the next following contract year but such a carry forward right might be unwelcome to the transporter for the same reason that it might be unwelcome to a seller of gas. The AIEN GTA provides for a carry forward right in the shipper’s favour, allowing for a credit to the shipper of an amount reflective of the tariff payable by the shipper in excess of the ASOPQ for a particular contract year which can be applied as an offset against the shipper’s future ship or pay liabilities. Because the make up right in the AIEN GTA provides for the payment of zero tariffs on make up quantities there should be no double counting between the two components. End of Document

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2

Introduction, UKBC-GASLNGS 493298744 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 30 - Understanding LNG Introduction 30-001 Liquefied natural gas (LNG) is predominantly methane which, through a process of refrigeration to a temperature of approximately minus 161°C (minus 260°F), is transformed from a gas to a liquid. This transformation gives a molecular reduction of approximately 600:1 1 and so makes it possible to transport greatly increased volumes of gas in a liquefied form. The LNG is loaded into specialist refrigerated ships at a loading port, shipped to an unloading port for discharge, stored in-tank and then turned back into a gas (to give regas) for further transportation and eventual consumption.

Footnotes 1

This 600:1 conversion factor is not absolute. The exact conversion factor depends upon the composition of the natural gas and could be in a range of 580:1 to 620:1.

End of Document

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1

LNG Measurements and Conversions, UKBC-GASLNGS 493298745 (2023)

LNG Measurements and Conversions Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 30 - Understanding LNG LNG Measurements and Conversions 2 30-002 The conversion of raw gas to LNG to regas (1-002), with the intervening involvement of LNG shipping, applies several different units of measurement along the way, which can be difficult to reconcile. Whereas a gas discovery in the ground is typically measured in cubic feet (ft 3 ), the resultant LNG which follows from the process of gas liquefaction is typically measured in cubic metres (m 3 ) – but will frequently be converted back from m 3 to ft 3 to calculate a contract price for the LNG (see below).

The LNG production capacity of a gas liquefaction plant is not rated in the amount of LNG measured in m 3 which it produces. Rather, a plant’s LNG production capacity is measured in the number of metric tonnes (MT) of LNG which it can produce per annum (to give MTPA). The conversion of gas in the ground to LNG (in its various units) works out as follows: 3 NATURAL GAS (FT 3 )

LNG (MT)

LNG (M 3 )

LNG (FT 3 )

50,000

1

2.358

83.26

100,000

2

4.716

166.52

500,000

10

23.58

832.60

1 million

20

47.16

1,665.20

5 million

100

235.8

8,326

10 million

200

471.7

16,652

50 million

1,000

2,358

83,260

100 million

2,000

4,716

166,520

250 million

5,000

11,790

416,300

500 million

10,000

23,580

832,600

1 billion

20,000

47,160

1.66 million

5 billion

100,000

235,800

8.3 million

10 billion

200,000

471,600

16.6 million

50 billion

1 million

2.358 million

83 million

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LNG Measurements and Conversions, UKBC-GASLNGS 493298745 (2023)

100 billion

2 million

4.716 million

166 million

500 billion

10 million

23.58 million

830 million

1 trillion

20 million

47.16 million

1.66 billion

5 trillion

100 million

235. 8 million

8.33 billion

10 trillion

200 million

471.6 million

16.66 billion

Produced LNG is shipped away from a loading port, using an LNG ship of a particular dimension (33-003). How many LNG ship voyages are needed to transport a given quantity of LNG will depend upon the size of the LNG ship used. So, for example, to transport 47.16 million m 3 of LNG (or one trillion cubic feet of gas in the ground) would require the following number of LNG ship voyages in total: LNG SHIP CARGO CAPACITY

LNG SHIP VOYAGES REQUIRED

10,000m

3

4,716

50,000m

3

943.2

100,000m

3

471.6

125,000m

3

377.2

175,000m

3

269.4

210,000m

3

224.5

266,000m

3

177.2

At an LNG regasification plant (which could be land-based or an offshore facility) at the unloading port the LNG will be discharged from the LNG ship into LNG storage and will then be vapourised (transformed from a liquid into a gas), which entails a reversal of the previous 600:1 gas to liquid molecular reduction. The resultant regas can be measured in m 3 or in ft 3 . 4 LNG which is discharged from an LNG ship will convert to the following volumetric regas quantities: LNG DISCHARGED

1m

3

10m 100m

3 3

1,000m

3

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REGAS IN M 3

REGAS IN FT 3

600

21,186

6,000

211,860

60,000

2.118 million

600,000

21.186 million

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LNG Measurements and Conversions, UKBC-GASLNGS 493298745 (2023)

10,000m

3

6 million

211.86 million

100,000m

3

60 million

2.118 billion

125,000m

3

75 million

2.648 billion

175,000m

3

105 million

3.707 billion

200,000m

3

120 million

4.236 billion

210,000m

3

126 million

4.449 billion

266,000m

3

159.6 million

5.635 billion

Regas, measured in volumetric terms of m 3 or ft 3 , will have an associated calorific (thermal) value, measured for example in British thermal units (Btus), 5 and that thermal value will in turn define the pricing of the regas. 6 Regas will convert to a thermal value (assuming 1ft 3 = 1,000 Btus) as follows: REGAS IN M 3

REGAS IN FT 3

REGAS IN MILLION BTUS

1 million

35.31 million

35,100 million (= 35.1 billion)

10 million

353.1 million

353,100 million (= 353.1 billion)

75 million

2,640 million (= 2.64 billion)

26,400 billion (= 2.64 trillion)

100 million

3,530 million (= 3.53 billion

35,310 billion (= 3.531 trillion)

105 million

3,700 million (= 3.70 billion)

37,000 billion (= 3.7 trillion)

126 million

4,440 million (= 4.44 billion)

44,000 billion (= 4.44 trillion)

159.6 million

5,630 million (= 5.63 billion)

56,300 billion (= 5.63 trillion)

-

1 million

1,000 million (= 1 billion)

-

10 million

10,000 million (= 10 billion)

-

100 million

100,000 million (= 100 billion)

1,000 million

1 million million (= 1 trillion)

The regas will be priced and sold in US$ per million Btus. Consequently different cargo sizes of LNG will have different US$ values associated with them. A cargo of LNG in-ship will convert to a monetary value (in US$ per million Btus) as follows:

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LNG Measurements and Conversions, UKBC-GASLNGS 493298745 (2023)

CARGO SIZE

(IN ‘000 M 3 )

REGAS VALUE @ US$1 PER MILLION BTUS

REGAS VALUE @ US$5 PER MILLION BTUS

REGAS VALUE @ US$10 PER MILLION BTUS

1,000

21,186

105,930

211,860

10,000

211,860

1,059,300

2,118,600

50,000

1,059,300

5,296,500

10,593,000

100,000

2,118,600

10,593,000

21,186,000

125,000

2,640,000

13,200,000

26,400,000

150,000

3,177,900

15,889,500

31,779,000

175,000

3,700,000

18,500,000

37,000,000

200,000

4,237,200

21,186,000

42,372,000

210,000

4,440,000

22,200,000

44,400,000

266,000

5,630,000

28,150,000

56,300,000

In the UK gas market LNG is typically priced in UK pence per therm, rather than in US$ per mmBtu. A therm is a non-metric unit of gas measurement which is equal to 100,000 Btus (and so one million Btus equals 10 therms).

Footnotes 2 3

The conversions which are suggested in this chapter assume no loss of gas quantities during processing for the purpose of making the conversion examples easier to follow. This conversion factor of 50,000 ft 3 of natural gas per MT of LNG is not absolute. The exact conversion factor depends upon the composition of the natural gas.

This conversion factor of 2.358m 3 of LNG per MT of LNG is not absolute. The exact conversion factor depends upon the composition of the LNG and could be in a range of 2.220m 3 to 2.480m 3 per MT. 4 5 6

The conversion factor for one ft 3 to one m 3 is the multiplication of the ft 3 number by 0.0283. The conversion factor for one m3 to one ft 3 is the multiplication of the m 3 by 35.31. Other thermal units which could be used are the therm (see below) or the kilowatt/hour (kW/h).

This conversion assumes that 1 ft 3 of regas is equal to 1,000 Btus. The exact conversion factor depends upon the composition of the regas and could be in a range of 900 Btus per ft 3 to 1200 Btus per ft 3 of regas.

End of Document

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4

Introduction, UKBC-GASLNGS 493298747 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 31 - LNG Project Structures and Principles Introduction 31-001 There are several ways of constituting and developing an LNG production, transportation and sale project, which are considered in this chapter. End of Document

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1

The LNG Value Chain, UKBC-GASLNGS 493298746 (2023)

The LNG Value Chain Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 31 - LNG Project Structures and Principles The LNG Value Chain 31-002 If in response to the discovery of a large volume of natural gas the person who holds the entitlement to develop that gas on a commercial basis has elected to do so through the medium of an LNG export project it will be helpful to consider the formulation which is popularly described as “the LNG value chain” in order to envisage the required project. This value chain is effectively a process continuum by which gas is produced and transformed into LNG at a gas liquefaction plant (which could be land-based or which could be an offshore facility), the resultant LNG is transported from where it is produced to where it is needed by specialist LNG ships, is discharged and stored in refrigerated tanks as LNG from which it is released and restored to a gaseous state (as regas) at an LNG regasification plant (which could also be land-based or which could be an offshore facility), and the resultant regas is then consumed. The following schematic represents at least one way of ordering the value chain structure, although a number of variations on this theme are possible:

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The LNG Value Chain, UKBC-GASLNGS 493298746 (2023)

Because of the essential interdependency of the components illustrated above the structure can properly be described as a chain. At its head are the upstream functions of gas production, pipeline transportation of that gas to the gas liquefaction facilities, the liquefaction of that gas to give LNG and the loading of LNG into LNG ships; in the centre of the value chain is the midstream function of shipping LNG; and at the end of the value chain are the downstream functions of LNG storage, LNG regasification and the transportation, supply and consumption of the resultant regas. 31-003 The value chain could also be described as a series of free-standing projects which are undertaken under the umbrella of an overall project. Each of the major project components—gas production, gas liquefaction, LNG shipping, LNG regasification and regas consumption—could constitute a sizeable project in its own right, and each gives rise to its own unique characteristics and complexities. Combining the parallel development, financing, and completion of each of these projects through integration into an overall LNG project is the essential extra step of a unified full-cycle LNG project. The concept of the value chain manifests itself in several ways: this could be done contractually, through the interlinking of the necessary contractual commitments between the various participants; economically, through the addition of value at each step of the chain as gas is produced, processed into LNG, transported and sold as regas; and physically, through the interconnection of all of the various infrastructure items needed to deliver regas ready for consumption. In reality there is no single definition of the value chain—it is whatever it needs to be, in order to give the requisite definition to a particular LNG project. 31-004 The structural representation of a full-cycle LNG project as a value chain presents several noteworthy characteristics: (i) The need to view the value chain holistically. Like any chain, the value chain will only be as strong as its weakest link and the failure of any of the components could break the value chain and jeopardise the LNG project in its entirety. A particular entity could be concerned with only one aspect of an LNG project (e.g. producing gas, shipping LNG or consuming regas) but that entity’s long-term commercial interests cannot be considered in isolation from the other components of the value chain. Thus, for example, whilst a gas producer might naturally regard its involvement in an LNG project as ending effectively at the point where the gas is produced and taken away for liquefaction to give LNG, that gas producer should necessarily also be interested in ensuring the effective liquefaction, sale, shipping and ultimate consumption of its gas, since any failure further down the value chain will have the capacity to disrupt the continuing viability of the gas production component. When it comes to financing the development costs of any particular component of an LNG project through financing from third party lenders (5-013) the lenders will also be concerned to examine the LNG project (and its attendant risks and revenue flows) as a whole. (ii) The ability to participate across the value chain. Because an LNG project can be viewed as a series of separate but interdependent components there could be the opportunity for an entity which more traditionally participates in only one particular component of the value chain to participate in other components which may be beyond its customary area of involvement. Such participation could be for commercial reasons (such as a desire to secure returns from more than one part of the overall LNG project, or to secure greater transparency in respect of the project) or for strategic reasons related to better protection of the overall integrity of the project. So, for example, the LNG regasification entity could become involved in the business of regas consumption and the LNG shipping function could be open to participation by the LNG seller or the LNG buyer. A number of LNG buyers have also taken position in the midstream and upstream segments of the value chain. (iii) The ability to participate in selected elements of the value chain. Because of the value chain structure, and the discrete components which it embodies, there is an opportunity for a prospective project participant to identify only one aspect of the LNG project into which it wishes to invest, without assuming an investment interest across the value chain (although this equally could be possible, following the point made immediately above). Thus, for example, the LNG shipping function has increasingly been subject to investment by shipping and logistics companies whose primary commercial interest has been in making returns from the carriage of LNG under

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The LNG Value Chain, UKBC-GASLNGS 493298746 (2023)

income-generating charter party agreements (34-002), without involvement in any of the upstream or downstream project components. (iv) Managing project timelines. The overall LNG project could be seen as a series of separate projects, wherein the horizons for all of these projects must come together in the proper chronological sequence if the LNG project is to be fully functional. This necessitates an appreciation of the different lead times for the completion of each project component. It may be, however, that certain parts of the value chain are also undertaken on an uncovered basis—that is, with the expectation that other parts of the value chain will fall into place subsequently. This could apply, for example, to the construction of gas liquefaction facilities despite the absence of finalised LNG purchase commitments. Construction of the necessary gas liquefaction, LNG regasification and regas consumption facilities should be a relatively predictable process which can be slotted into an overall project schedule but environmental, political and social factors have demonstrated an ability to derail the best laid plans; the construction of new LNG ships (assuming there is no existing and uncommitted LNG shipping capacity which can be utilised) should also be a predictable process but the availability of the requisite shipyard capability could be a constraining factor; the completion of upstream gas production infrastructure will require the implementation of a production plan of development whose precise nature will not be known until there is in existence an adequate pool of knowledge about an underlying gas field’s geological and geophysical characteristics. There is also an inevitably cyclic nature to LNG project growth: in periods of increasing energy demand there will be increased demand-side interest in securing LNG volumes, and so correspondingly increased supply-side interest in delivering those volumes; rising energy prices, as a consequence of increasing energy demand could, however, lead to demand destruction; this in turn could lead to market saturation and energy price collapses, which in turn could curb the enthusiasm of potential LNG sellers to invest in the development of their projects. The consequences of these swings of emphasis will need to be addressed through the entire project life-cycle. During all of the time which it takes to assemble an LNG project there will also typically be some political, economic, commercial or regulatory evolution underway somewhere in the envisaged value chain, which will have to be taken into account. (v) Co-ordinating contractual interfaces. An LNG project which is structured on the basis of disaggregating the various project components and relying on separate arm’s length agreements to manage the transition of gas to LNG and to regas will require multiple contracts. At the heart of the enterprise will be a sale and purchase agreement between the LNG seller and the LNG buyer (32-001), but either side of this will be the various agreements for gas supply and downstream regas sales, arrangements for liquefaction, regasification and LNG shipping and a host of ancillary arrangements for infrastructure construction, operation and maintenance. When all of the necessary project consents, concessions and permits are added in, along with any agreements for the financing of any aspects of the value chain, then the total LNG project roadmap can quickly become very complicated. The challenge faced by the parties to any LNG project is to ensure that the interfaces between all of these various contracts are as seamless and efficient as they possibly can be. At a minimum, significant attention will need to be devoted to ensuring that contract durations are consistent, that rights to claim force majeure relief and even to terminate certain contracts are applied across the value chain and that costs and revenues flow between all of the project participants in the way that they properly ought to. End of Document

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3

Gas Liquefaction Project Structures, UKBC-GASLNGS 493298748 (2023)

Gas Liquefaction Project Structures Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 31 - LNG Project Structures and Principles Gas Liquefaction Project Structures 31-005 Gas liquefaction projects (whether onshore or offshore) require considerable capital investment. 1 As a result such projects typically need to have long and economically productive lives. Risk needs to be properly allocated and the project’s parameters must be clearly defined to allow third party lenders’ debt liabilities (5-013) to be paid off and to generate sufficient returns for the project’s investors over the lifetime of the project. Consequently a gas liquefaction project could be expected to produce LNG for a period of atleast 20 years, and the project could also be expanded by the addition of new LNG production facilities over the project’s lifetime. Because of the magnitude of the associated project costs a gas liquefaction project is typically undertaken by multiple project participants. An appropriate project structure will enable state-owned entities and private sector participants (which could be energy companies, utilities, or financial investors) to invest in the project. The structure which is chosen for a particular gas liquefaction project will determine whether the project participants will be able to successfully conclude contracts for the sale or for the processing of LNG with the appropriate counterparties, and it will also have an impact on whether the project is able to attract further equity investors and to raise financing from third party lenders (whether on attractive terms or at all). 31-006 There are several options for how a gas liquefaction plant could be owned and its capacity could be used. These options are principally distinguished between the following three structures: the integrated LNG production model, the merchant LNG production model, and the tolling LNG production model. However, in reality a particular gas liquefaction project might exhibit features from more than one of these models, such as the hybrid structures which are considered below for the sake of illustration. No one structural model is better than the others and in the case of any particular LNG production project there will be several key factors which influence the choice of model for the host government, the investors, any third party lenders and the ultimate buyers of LNG. These factors could include the legal and taxation regime of the LNG production project’s host country (e.g. where different fiscal and taxation regimes between upstream and midstream projects give tax advantages for structuring a project one way or the other), the ability to access financing from third party lenders for integrated or separated project elements, the desire (or not) of gas exploration and production companies to be involved in the business of gas liquefaction and LNG export (and vice versa in respect of gas liquefaction companies), the desire of a state to develop an independently-owned tolling facility as a hub for the commercialisation of gas for multiple independent persons in the interests of greater facilities efficiency, or the desire for an overall LNG project to retain flexible ownership opportunities in respect of discrete elements which allows for participation by individual companies in different elements of the value chain. 31-007 In the integrated LNG production model the same entities will own the upstream gas reservoirs and the facilities which are needed for gas production and the pipeline transportation of gas from the point of production, and they will also own the liquefaction plant. The LNG producers are therefore also the gas producers, liquefying their own gas and selling it as LNG. The liquefaction plant and the upstream facilities are essentially extensions of themselves to give a single industrial process for gas production, transportation, liquefaction, and the sale of LNG, whereby the LNG producers will sell the resultant LNG to an LNG buyer under a sale and purchase agreement (SPA):

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Gas Liquefaction Project Structures, UKBC-GASLNGS 493298748 (2023)

This model assumes that the project entities have the necessary competence in both aspects of gas production and LNG production, and is widely used (for example, in the Driftwood project in the US (where the LNG producer has moved upstream into gas production), and in the Tortue project in Mauritania and Senegal (where the gas producers have moved downstream into LNG production)). This model offers greater alignment between the project entities because of their common interests in gas production and LNG production, and could give greater overall process efficiency (although separate operating entities could be appointed to act in respect of the gas production and LNG production functions), and has several features to note: (i) Ownership interests. There could be complete symmetry between the participating interests of the project entities in the gas production and LNG production aspects of the project. Alternatively, within the combined gas production and LNG production function there could be some degree of functional separation: the gas production interests could be held by the project entities acting through an unincorporated joint venture, and those entities could also be the shareholders in a joint venture company which owns and operates the gas liquefaction plant. This could allow a later separation of interests, so that there can be differing levels of investment in the different parts of the overall project. (ii) Access to LNG processing capacity. The LNG processing capacity in the gas liquefaction plant could be held by the project entities in proportion to their respective upstream interests, although the project entities could also elect to make some of the processing capacity available to a person for a fee (in order to facilitate tolling LNG production—see below). This would result in the LNG processing capacity being held by the project entities in ratios which are disproportionate to their upstream interests. (iii) Financing issues. The revenues which are payable by a buyer under the SPA could be required to underpin the entirety of the costs of gas production and LNG production. Consequently the creditworthiness of the buyer will be a critical issue to the success of the whole project. From a debt perspective, lenders could be attracted by the scale and the relative simplicity and certainty which the integrated project structure offers (although lenders could also be concerned by the significance of the total amounts which are required to finance the development of the entirety of the project). (iv) Regulation. There could be some regulatory issues associated with extending a gas production concession to include the gas liquefaction function (or vice versa), although the separate regulation of the two aspects of the integrated project should not be an insurmountable issue if that becomes a regulatory requirement. (v) Taxation. The project’s host government could be concerned that the aggregation of the fiscal and taxation regimes between the gas production and LNG production aspects of the project could operate to its detriment (at least compared to other project structures which could offer greater transparency through separated cost and revenue centres in respect of the key elements of the value chain). 31-008

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Gas Liquefaction Project Structures, UKBC-GASLNGS 493298748 (2023)

In the merchant LNG production model (which is sometimes called the “synthetic tolling model”, although there is no tolling in the accepted sense (see below)) the LNG producers will contract to buy gas from upstream gas producers and will contract for the pipeline transportation of gas from the point of production to the liquefaction plant (unless the gas producers also procure the transportation service). The gas production and LNG production functions are undertaken by different entities (although those entities could also be affiliated, with common overall ownership). This model requires an additional layer of project contracts, with the attendant risks of complexity and managing the contractual interfaces. The LNG producers will have a gas sale and purchase agreement (GSPA) in place with the gas producers, and will sell the resultant LNG to an LNG buyer under an SPA:

This model is used, for example, in the Corpus Christi and Sabine Pass projects in the US, and has several features to note: (i) Ownership interests. This can be a flexible arrangement, whereby differing ownership interests between the gas production and LNG production functions could allow a person to invest in only the element of the value chain which it is most comfortable with. (ii) Financing issues. Lenders could select which aspect of the overall project they are willing to finance, although there could also be some competition for access to debt finance between the gas production and LNG production aspects of the project. (iii) Gas and LNG pricing interfaces. The LNG producers will not wish to be exposed to a loss-making arbitrage between the price which they pay for gas to the gas producers and the revenues which they receive from the LNG buyer from the sale of LNG. This model therefore lends itself to the Henry Hub pricing model, whereby the LNG producers charge the LNG buyer a price for LNG which represents a pass-through of their gas purchase costs. (iv) Taxation. From the project’s host government’s perspective, greater transparency could be afforded through the disaggregation of the fiscal and tax regimes between the gas production (and sale) and LNG production (and sale) elements of the project. On the other hand there could be concerns about transfer pricing where the GSPA is entered into between affiliated entities or otherwise than on arm’s length terms. (v) Gas purchase flexibility. The LNG producers will have competitive options (relating to price and other flexibility) in respect of where they can buy their gas where there is sufficient liquidity in the upstream gas market. The LNG buyer could see a relative price reduction compared to the integrated LNG production model, which could have a captive source of gas production. 31-009 In the tolling LNG production model the LNG producer provides a gas liquefaction service to a liquefaction plant user for a fee under an agreed form of tolling agreement (TA), but is not engaged in producing or procuring gas for liquefaction or selling LNG, and takes no interests in the markets for which the resultant LNG is intended. The liquefaction plant user produces or procures gas, which is then processed by the LNG producer and is made available as LNG to the liquefaction plant user.

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Gas Liquefaction Project Structures, UKBC-GASLNGS 493298748 (2023)

The fee which is payable to the LNG producer under the TA will apply regardless of the price which the liquefaction plant user pays for the gas or recovers from the sale of LNG, and regardless of whether the liquefaction plant user even uses the liquefaction plant or sells any LNG (because the LNG producer will typically ensure that its fee income is secured by a long term use or pay commitment, to reflect the capacity which the liquefaction plant user has reserved in the gas liquefaction plant). The fee could be split between fixed and variable elements, where the fixed element covers the gas liquefaction plant’s operating and maintenance costs and the LNG producer’s financing charges, and the variable element covers the gas liquefaction plant’s variable costs when the liquefaction plant user requires the production of LNG. The risk profile which is associated with the tolling LNG production model suits a utility which has no access to, nor interest in, the business of upstream gas exploration and production, and which is averse to taking price risk in respect of the resultant LNG. The model is used, for example, in the Cameron and Freeport projects in the US, and has several features to note: (i) Ownership interests. This can be a flexible arrangement, whereby differing ownership interests between the gas production, LNG production and LNG sales functions could allow a person to invest in only the element of the value chain which it is most comfortable with. (ii) Maximising LNG production. This model can create the development of a centralised LNG production hub, allowing multiple gas field developments to take place simultaneously and allowing multiple participants to participate as liquefaction plant users. (iii) Gas purchase flexibility. The liquefaction plant user will have competitive options (relating to price and other flexibility) in respect of where it can buy its gas, where there is sufficient liquidity in the upstream gas market. (iv) Economic flexibility. The liquefaction plant user can suspend the purchase of gas and the sale of LNG (if its GSPA and SPA terms so allow), and can suspend use of the gas liquefaction plant (subject to payment of the tolling fee) if commercial circumstances so require. (v) Utility rate returns. The LNG producer is not exposed to the LNG sales world, and so could lose the opportunity to make significant returns during periods of high LNG prices. On the other hand, neither is the LNG producer exposed to the risks of a low price LNG environment. The relatively stable returns which the LNG producer will enjoy from the operation of the gas liquefaction plant for a number of liquefaction plant users with long term use or pay commitments could be attractive to lenders for the financing of the development of the liquefaction plant. 31-010

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Gas Liquefaction Project Structures, UKBC-GASLNGS 493298748 (2023)

The ownership and operational model for a particular gas liquefaction plant could be modified to apply the elements from more than one of the project structures outlined above: (i) Integrated and tolling. The gas liquefaction plant is owned and operated by the upstream gas producers, and they could enter into an arrangement whereby (as liquefaction plant users) they pay themselves a tolling fee (as the LNG producer) to reserve capacity to process their gas through the gas liquefaction plant to give LNG. This model is borrowed in part from the world of pipeline project financing, where gas producers who are also pipeline owners will charge themselves a fee, as shippers, to use their own pipeline. The tolling fee covers a proportionate share of the financing costs for developing the gas liquefaction plant and the plant’s operating and maintenance expenses, and it establishes a revenue stream for any lenders for the financing of the development of the gas liquefaction plant. (ii) Integrated or merchant and tolling. The gas liquefaction plant could be set up on the basis of the integrated LNG production model or the merchant LNG production model (see above) by the LNG producer, but the LNG producer could also reserve part of the gas liquefaction plant’s capacity for use on a tolling basis, such that both activities are carried out simultaneously.

Footnotes 1

A rough rule of thumb which has survived in the LNG industry for a number of years suggests that it will cost US$1,000 to develop each MT of processed LNG capacity. Thus, a gas liquefaction plant with an annual output of 5 MTPA would cost US$5 billion to construct. This is a very generalised assumption, and one which varies between different forms of gas liquefaction project (including onshore and offshore facilities) and over time (including in consequence of inflation), but it is also widely regarded as a good place to start when pricing a prospective LNG production project.

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Introduction, UKBC-GASLNGS 493298759 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Introduction 32-001 The key commercial terms of a contract for the sale of LNG will be broadly similar to the terms of a contract for the sale of pipeline gas which are discussed in Part B and in Part E of this book, but there are also several critical differences to note, which are recited on a clause-by-clause basis below. LNG could be sold under the terms of an SPA or an MSPA. This chapter will focus on the content of an SPA, with any differences which relate to an MSPA pointed out where necessary. End of Document

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The Parties, UKBC-GASLNGS 493298756 (2023)

The Parties Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content The Parties 32-002 An SPA will have a seller and a buyer as previously described (Ch.9). Single person sellers and joint venture company sellers frequently feature in the context of MSPAs, and (along with multiple separate sellers) in the context of mid-term and long-term SPAs. Buyer-side arrangements could also be structured as previously described. A peculiarity to note is the definition of the seller and the buyer under the AIEN LNG MSPA (6-002), which has two particular features. Despite the execution of the MSPA by specific persons: (i) either party could constitute a seller or a buyer for the purposes of a particular confirmation notice (and so this contract, because it is bi-directional, is deliberately written not to be biased towards the interests of the seller or the buyer); and (ii) an affiliate of a party can execute a confirmation notice but with the expectation that the nominated party in the MSPA, and not the affiliate, will be bound by the resultant LNG sale or purchase obligation. 32-003 An LNG producer which has interests in a number of different LNG production projects could decide to create what is sometimes called a “portfolio company”, as an affiliated entity into which would be transferred all of the LNG producer’s LNG supply entitlements and its LNG shipping capacities. This portfolio company could then optimise the supply of generic LNG (including through LNG swaps (2-019) and spot trading through MSPAs (6-004)) to buyers from a number of supply source options. Buyers in turn would benefit from a reduced exposure to the risk of performance failure from a single source of supply. End of Document

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The Term, UKBC-GASLNGS 493298765 (2023)

The Term Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content The Term 32-004 A greenfield SPA (2-015) could be the subject of any of conditions precedent, a scheduled start date which comes later than the execution date and late start liabilities, all in the manner previously described for a GSA. At the other end of the scale such constructions are less likely in a brownfield SPA (2-015) and will not feature at all in an MSPA. An MSPA lives in a curious twilight. It comes into existence as a binding contract between the parties when it is executed and will thereafter subsist until it is terminated (and so is an example of an evergreen contract—10-002), but no obligations to sell and purchase LNG will be created until a confirmation notice is executed by the parties. 32-005 A long term SPA is traditionally suggested to be the preferred vehicle for structuring the sale and purchase of LNG because it gives revenue certainty to the seller which is necessary to underpin the third party debt financing of the costs of developing the gas production and gas liquefaction facilities, and because it applies certainty and predictability to the seller/buyer relationship. Against this observation however is the reality that global energy markets are often in a state of transition, reflecting the advent of new sources of LNG supply, new centres of LNG demand, and the growing advent of renewable energy production. Consequently a long term SPA can quickly become out of touch with market conditions. The closest point of commercial connection of an SPA to an energy market (whether production or consumption) in which it is intended to operate will exist at the date of execution of the SPA between the parties. Thereafter the correlation of the SPA and the market will inevitably begin to degenerate (principally by reference to the key commercial elements of price, quantity commitment and delivery flexibility). A buyer could be reluctant to make a long term LNG purchase commitment (particularly without the inclusion of effective mechanisms which could allow the agreed contractual bargain to be rebased from time to time). Sellers (and their lenders) are increasingly comfortable with taking a final investment decision in respect of a new LNG production project with shorter term SPAs and a measure of merchant risk. Buyers and sellers together have become more willing to develop a portfolio of long, mid and short term LNG sale and purchase commitments (including spot trading opportunities). 1

Footnotes 1

The GIIGNL Annual Report of 2022 suggested that in 2021 the average term of an SPA was 13.6 years (and this becomes 15.3 years when the sample SPAs are volume weighted). See https://giignl.org/wp-content/uploads/2022/05/ GIIGNL2022_Annual_Report_May24.pdf.

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The Delivery Point and Delivery, UKBC-GASLNGS 493298755 (2023)

The Delivery Point and Delivery Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content The Delivery Point and Delivery 32-006 The two most commonly used off-the-peg formulations for determining the point of delivery in respect of a cargo of LNG are derived from (but do not necessarily replicate) the International Chamber of Commerce’s Incoterms publication: 2 (i) Free on board (FOB). Under the classic FOB formulation a seller delivers goods to a buyer when the goods pass the ship’s rail at the named port of shipment. In the context of selling LNG this formulation is customised in an SPA to provide that custody, title and risk in respect of the sales quantity of LNG will transfer from the seller to the buyer at the loading port, at the point of interconnection between the buyer’s LNG ship and seller’s LNG loading facilities. The buyer will be obliged thereafter to transport the LNG away from the loading port to the unloading port, at the buyer’s own expense (and should arrange the necessary LNG cargo insurance). (ii) Delivered ex ship (DES). Under the classic DES formulation a seller delivers goods to a buyer when the goods are placed at the buyer’s disposal on board the ship at the named port of destination. In the context of selling LNG this formulation is customised in an SPA to provide that custody, title and risk in respect of the sales quantity of LNG will transfer from the seller to the buyer at the unloading port, at the point of interconnection between the seller’s LNG ship and the buyer’s LNG unloading facilities. The seller will be obliged to transport the LNG from the loading port to the unloading port (and should arrange the necessary LNG cargo insurance), and the costs of such transportation will typically be added into the contract price payable by the buyer for the LNG. Diagrammatically each of these formulations would appear as follows:

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The Delivery Point and Delivery, UKBC-GASLNGS 493298755 (2023)

A seller might prefer the DES formulation because it gives control of the LNG shipping function up to the unloading port, better enabling the management of LNG ship scheduling and diversions (see below). For the same reason a buyer might prefer the FOB formulation. 32-007 In the 2010 edition of Incoterms the DES formulation was eliminated, and two new formulations were suggested, Delivered at Terminal (DAT) and Delivered at Place (DAP). DAP most closely approximates to DES, with delivery effectively taking place once the seller has unloaded and made the goods available to the buyer at the named place of delivery (but beyond that the practical differences between DES and DAP are very slight). An SPA (to the extent that an SPA intends to recite a particular Incoterms formulation, rather than to create its own bespoke regime for the transfer of title, risk and custody, which is the norm) should therefore be careful to refer either to DES as per Incoterms 2000 or DAP as per Incoterms 2010, and should avoid the confusion which would be caused by inaccurate references to the various delivery formulations and Incoterms editions. That said, DES has stayed the course in the LNG industry as the preferred term (despite its apparent replacement) and so the term DES will continue to be used in this book as the preferred shorthand for the contractual formulation whereby the seller undertakes responsibility for transporting LNG to the buyer. There is a tendency, particularly in the sale of LNG under an MSPA, to reference an Incoterms delivery formulation but then to modify certain aspects of that formulation. To eliminate the risk of inconsistency a sales contract could provide that in the event of a conflict the express terms of the sales contract will take precedence over the wording of the Incoterms formulation. 32-008 Title, risk and custody in respect of a cargo of LNG will normally transfer from the seller to the buyer at the delivery point which is defined in the SPA but there could be certain circumstances where the parties to an SPA elect to create a hybrid formulation for such transfers which they believe better suits their commercial circumstances. Where the seller has agreed to undertake responsibility for transporting LNG to the unloading port under a DES-based sale the seller could be nervous that the act of repeatedly landing and transferring title to LNG to the buyer at the unloading port, and consummating the sale of LNG at that point, could afford an opportunity to the taxation authority of the country in which the unloading port is situated to impute a taxable presence, and so a potential liability to taxation in that country, to the seller. The risk of such suggestion by a taxation authority might be more imagined than real but it is a risk which over time has exercised the minds of some LNG sellers. An SPA will typically contain a tax indemnity (41-026), whereby the buyer will indemnify the seller against any taxation liability which the seller incurs in the country in which the unloading port is situated, but the seller’s initial preference should be to eliminate the taxation risk to the greatest extent possible rather than to rely on the uncertainty of recovery under an indemnity. To this end the parties could agree to modify the DES formulation to say that title to an LNG cargo will transfer from the seller to the buyer at a notional point which is just prior to the point at which the seller’s LNG ship crosses the line of demarcation between international waters and the territorial waters of the country in which the unloading port is situated on the inbound voyage. Thus, says the seller, at the point when the LNG comes to be unloaded at the unloading port it already belongs to the buyer and the seller has simply performed a bare transportation function in bringing the buyer’s LNG to the unloading port on the buyer’s behalf. By this measure it is to be hoped that the interest of the taxation authority of the buyer’s country in imputing a taxable liability to the seller would abate. 32-009 Consequently, in the shipping of LNG a formulation which has found favour in some DES-based sales 3 is the use of an offshore title transfer point whereby: (i)Title to the entire quantity of LNG in the LNG ship (including the heel) transfers from the seller to the buyer at the notional point immediately prior to the point of crossing the line of demarcation between international waters and the territorial waters of the country in which the unloading port is situated on the inbound voyage (and so there is an effective transfer of title under English law because all of the LNG has become ascertained at that point (11-006)). Custody of the LNG obviously remains with the seller. Whether or not risk of loss of or of damage to the LNG will also transfer at the same time as title transfers from the seller to the buyer is an issue for negotiation in the SPA. (ii)In recognition of the need to bestow some form of proprietary interest in part of the LNG cargo upon the seller, at the point immediately after the LNG ship’s crossing of the line of demarcation the buyer grants to the seller a free licence to

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The Delivery Point and Delivery, UKBC-GASLNGS 493298755 (2023)

retain and use such quantities of LNG as the seller needs for use as bunkers for powering the LNG ship (if necessary) on the inbound and return voyages, and as heel. (iii)At the unloading port the seller unloads the LNG ship and custody of, and risk in respect of, the LNG which is unloaded passes to the buyer (unless risk also transferred to the buyer at the notional point). Custody of the LNG to be used as bunkers for the return voyage and as heel remains with the seller. (iv)Title to whatever quantity of LNG is left in the LNG ship transfers from the buyer back to the seller, either at the completion of the delivery of LNG or at the notional point immediately after the point of crossing the line of demarcation on the return voyage, and the licence which was granted by the buyer under point (ii) above ends. Diagrammatically this arrangement would appear as follows:

Such an arrangement would also help the seller where a particular permit is required to transport LNG as a title-holder in the territorial waters of the country in which the unloading port is located. 32-010 A particular issue to note from the above construction is the buyer’s exposure where it has taken title to an LNG cargo, and risk in respect of that LNG cargo has also transferred to the buyer at the notional point, for a period of time before custody to the LNG cargo transfers to the buyer at the unloading port. The loss of the LNG cargo in that interim period would ostensibly be borne by the buyer but at a time when the buyer was unable to exercise any measure of control over the LNG cargo, which the buyer might object to. The SPA could be modified therefore to say that the seller will indemnify the buyer against this risk but doing so shifts the effective burden of risk back onto the seller and could prejudice the intended tax efficacy of the offshore title and risk transfer provision. As an alternative the buyer (or the seller) might be able to insure against the risk loss of the LNG cargo in that interim period. A similar provision for an intermediate transfer of title could also be worded to apply for the protection of the buyer from the imagined taxation risk where LNG is sold on an FOB basis, where title transfers from the seller to the buyer at the notional point on the outbound voyage and not at the loading port. 4 32-011

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The Delivery Point and Delivery, UKBC-GASLNGS 493298755 (2023)

The operability of this offshore title transfer device relies upon the presumption that the taxation authorities of the jurisdiction in which the loading port or the unloading port (as appropriate) is located will tax the shipping party where that party has title to the cargo (hence the deferred transfer of title). If the taxation authorities decide to tax the shipping party on the basis of custody of the cargo, or on the basis of the shipping party being the actual or the disponent owner of the LNG ship, rather than just be reference to which party has title to the cargo, then the device would need to be modified accordingly. 32-012 Apart from the principal delivery point which is identified in an SPA, provision might also be made for alternative delivery points at which the seller could deliver LNG to the buyer (being an alternative loading port in an FOB-based sale and an alternative unloading port in a DES-based sale). Such a construction would particularly suit portfolio sellers and buyers (32-003). The parties may wish to exercise some control over the extent to which alternative delivery point facilities can be readily applied within an SPA, however, in the interests of maximising ship/facility compatibility and reducing the exposure to force majeure claims which might be a consequence of accessing a wide range of potentially untested facilities. The SPA will also need to address the allocation of title to the natural gas vapours which are inevitably generated within the process of the loading or the unloading of a cargo of LNG. A common solution is that in an FOB-based sale title to the natural gas vapours which are returned from an LNG ship during loading will pass to the seller at the point of connection of the outlet flange of the vapour return hose on the buyer’s LNG ship with the inlet flange of the vapour return hose on the seller’s LNG loading facility. Correspondingly, in a DES-based sale title to the natural gas vapours which are returned to an LNG ship during unloading will pass to the seller at the point of connection of the outlet flange of the vapour return hose on the seller’s LNG ship with the inlet flange of the vapour return hose on the buyer’s LNG receiving facility. These natural gas vapours should not be the subject of an imputed sale to the recipient party. 32-013 In an SPA the point at which the act of delivery of LNG by the seller can be said to have been performed will also require some particular consideration. In a DES-based sale the seller’s obligation is usually regarded as having been performed if the seller has caused its LNG ship to arrive at a nominated point (such as a pilot boarding station at the unloading port and the master of the LNG ship has served a notice of readiness (33-015) within a specific timetable which the SPA provides for, rather than going on to define the test of the seller’s delivery through the following steps that the seller’s LNG ship is all fast at berth and is ready to discharge, or has even discharged, its cargo. In contrast, in an FOB-based sale the seller’s obligation will be performed either if the seller is ready to commence loading LNG into the buyer’s LNG ship at the loading port within a specific timetable which the SPA provides for, or if the seller has completed the loading of a specified LNG quantity into the LNG ship within a specific timetable. The seller’s performance against either of these parameters will only be capable of being measured if the buyer has caused its LNG ship to arrive at the loading port within the SPA’s timetable and the LNG ship has been berthed. A failure of the seller to meet these parameters will be indicative of a seller’s delivery failure (see below). 32-014 The seller could also make a DES sale, despite being unable or unwilling to directly procure the necessary LNG shipping capacity to effect the delivery of LNG, by engaging in a process known as “sleeving” (and also known as a “synthetic DES sale”). This entails the following commercial sequence: (i)the seller sells an LNG cargo to a third party (which has access to LNG shipping capacity) on an FOB basis, for delivery at the loading port, for an agreed price; (ii)the third party ships the LNG from the loading port to the unloading port; (iii)at the unloading port the third party sells the LNG cargo back to the seller for the agreed price, plus the shipping costs, plus an agreed margin; and (iv)the seller sells the LNG cargo to the intended buyer. This transaction enables the seller to contract to sell LNG on a DES basis, without being the shipping party, and enables the third party to make a margin on the buy/sell transaction in consideration of undertaking the LNG shipping function.

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The Delivery Point and Delivery, UKBC-GASLNGS 493298755 (2023)

32-015 The sales contract will typically provide that the failure of the buyer to take delivery (or the election of the buyer not to take delivery) of LNG will allow the seller to dispose of the untaken LNG elsewhere. This could also be necessary as part of a mitigation sale provision in the sales contract. As a practical matter, the seller should therefore put in place arrangements to facilitate the swift sale and disposal of unlifted LNG. This could be done through entry by the seller into MSPA arrangements (6-004) with a number of putative alternative buyers. An arrangement by the seller for the disposal of unlifted LNG could also be necessary for a key operational purpose—to ensure that LNG which is untaken by the buyer will not run the risk of impeding the continued production of LNG by the seller through forcing a shut-down of the LNG production facilities.

Footnotes 2

3 4

Incoterms is a series of sales terms, widely used in international commercial transactions for the sale and purchase of goods to provide a common interpretation of commonly used trading terms. The first version of Incoterms was introduced in 1936. On 1 January 2020 the latest edition, Incoterms 2020, came into force. See https://iccwbo.org/resources-forbusiness/incoterms-rules/incoterms-2020/. See P-20. See P-21.

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Diversions, UKBC-GASLNGS 493298752 (2023)

Diversions Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Diversions 32-016 Although a sale of LNG could be made by a ship which traverses two fixed points (sometimes called a “tramline trade”), one of the popularly-recited advantages of LNG deliveries is that LNG ships have the flexibility to facilitate delivery into multiple markets, in contrast to a point to point gas pipeline (25-002). This flexibility leads to a consideration of the circumstances in which an LNG ship can be diverted from making a delivery to the destination of its originally-intended unloading port after it has loaded a cargo of LNG. In the course of delivering LNG either party could require the flexibility to divert a cargo of LNG from delivery to the originallyintended unloading port to an alternative unloading port. There would be an economic incentive to effect such a cargo diversion where the party wishing to do it has agreed a better sale price for the delivery of that LNG at the alternative unloading port. This is the principle of diversion and whilst it is simple enough to describe mechanically it can be difficult to structure in an SPA, and it is often fraught with regulatory uncertainty. The position also differs between seller–transported (DES) and buyertransported (FOB) LNG cargoes, and also between the aspirations and the abilities of the seller and the buyer under each of those formulations: (i) DES diversion by the seller. In a DES-based sale the seller is responsible for transporting the LNG to the agreed unloading port. The first option for the seller is to effect a diversion regardless of the buyer’s expectations under the SPA and to assume whatever liability the SPA prescribes for a seller’s delivery failure (see below). The seller would ostensibly do this in exchange for securing a return from the diversion sale which outweighs the costs of a seller’s delivery failure under the SPA. This could expose the seller to a claim by the buyer for whatever liability flows under an SPA for wilful default (see below), or to the risk that (ultimately, depending on what quantities of LNG are so diverted) the buyer’s right to terminate the SPA for the seller’s failure to deliver LNG (39-005) is triggered. In any event the seller might not welcome the reputational damage which might result from being known to have undertaken such a course of action. As the more normal alternative therefore, the seller would request the buyer’s consent to effect a diversion, and the buyer might need the offer of an economic incentive from the seller to allow the diversion to take place. (ii) DES diversion by the buyer. Because the buyer is the non-transporting party, lacking actual control of the LNG ship, the buyer will not be in a position to force a diversion, and so would have to request and negotiate the diversion with the seller. The seller might need an economic incentive from the buyer to effect the diversion, not least since the seller still holds title to and custody of the LNG cargo up to the agreed unloading port (so that a diversion would in effect be a modification to the agreed terms of the SPA) and would be risking disruption to the SPA’s agreed LNG shipping schedules in order to effect the diversion for the buyer. (iii) FOB diversion by the buyer. In an FOB-based sale the buyer is responsible for transporting the LNG to the buyer’s intended unloading port. Because the sale and purchase of the particular LNG cargo has already been completed when the buyer takes title to and custody of the LNG cargo at the loading port then there is no obvious need for the buyer to secure the seller’s consent or assistance in effecting a diversion.

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Diversions, UKBC-GASLNGS 493298752 (2023)

(iv) FOB diversion by the seller. Because the seller is the non-transporting party, lacking actual control of the LNG ship, the seller will not be in a position to force a diversion, and so would have to request and negotiate the diversion with the buyer. The buyer might need to be given an economic incentive by the seller to effect the diversion. In order to regulate the whole business of diversions an SPA could recite the following provisions between the seller and the 32-017 buyer: (i) Destination clauses. An SPA might seek to prohibit a buyer from selling, or procuring the sale, of the LNG which is to be delivered to the buyer at an identified unloading port in a DES-based sale, or which is to be taken from the loading port to an identified unloading port in an FOB-based sale, for delivery to any alternative unloading port. Thus, the buyer would be prohibited (by what is sometimes called a “destination clause” in an SPA) from having the LNG which is due to be delivered at an identified unloading port taken to any other unloading port (at least, not without the seller’s consent, and unless an exception which offers some economic incentive to the seller can be negotiated at the time) and any attempt by the buyer to do so would result in a breach of the terms of the SPA by the buyer. A destination clause would not be difficult for the seller to enforce in a DES-based sale because the seller controls the LNG shipping but it would obviously be more difficult for the seller to enforce in an FOB-based sale, where the buyer has control of the LNG shipping after the LNG cargo has been loaded. Destination clauses are effectively territorial restrictions, intended to preserve market separations for LNG sellers, and whilst they might be readily capable of agreement as commercial terms between the parties within an SPA they can present significant competition law problems (see below). As a practical matter, the intention of a destination clause might be defeated where an LNG cargo is delivered to the intended unloading port and is unloaded from an LNG ship but is then immediately reloaded into the same LNG ship and is sent on its way to another unloading port, or if there is a ship-to-ship transfer of a cargo whilst it is en route (unless the destination clause is written also to track such possibilities). (ii) Benefit sharing mechanisms. Where one party might need to be offered an economic incentive by the other party to effect a diversion (see above) this could be done by an agreed sharing of the incremental benefits which accrue in consequence of effecting a diversion. This could happen on an ad hoc basis in respect of a particular diversion, or certain principles for the basis for the sharing of the benefits (often called “benefit sharing”, or “upside sharing”) could be pre-agreed and recited in the SPA. A benefit sharing mechanism which is particularly unattractive to a party could disincentivise that party from seeking a particular diversion opportunity and because of its unattractiveness it could have the effect (if not the objective) of being a form of destination clause in its own right. Benefit sharing mechanisms generally suffer from poor definition of how they are intended to operate, with a split of incremental profits being simple enough to state in principle but not always being so clearly calculable in practice. Benefit sharing mechanisms also require some careful consideration of applicable confidentiality provisions because of the reporting obligations which they inevitably entail in respect of the diversion opportunity as a condition of properly applying the mechanism, and they can present significant competition law issues (see below). 32-018 Destination clauses and benefit sharing mechanisms can be agreed between the parties within the terms of an SPA as a matter of contract and as the product of a commercial negotiation but they can cause regulatory concern, depending on the market into LNG is to be supplied. Over the last few years the European Commission has carefully examined destination clauses (and benefit sharing mechanisms which have the object or the effect of achieving the same result) from the perspective of whether these provisions could partition the intended free market for gas in the EU. End of Document

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Quantities, Rates and Reserves Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Quantities, Rates and Reserves 32-019 The single biggest operational difference between contracts for the sale of pipeline gas and LNG is the manner in which the quantities of gas and LNG are structured in a GSA and in an SPA. This reflects the very different methods of transportation of gas through pipeline and LNG in a ship. The reserves certification elements which were discussed previously in the context of pipeline gas sales (12-020) could apply equally in respect of a long-term SPA. In the context of long-term LNG deliveries the following quantities constructions will apply: (i) The ACQ. As a starting point an SPA will set an annual contract quantity (ACQ) for each contract year (and prorated for part contract years), by reference to a defined thermal volume of LNG (where the required calorific value is typically expressed in millions of Btus, often with an approximation to a corresponding number of metric tonnes of LNG for reference only). An SPA could, in the simplest sense, be written as an obligation of the seller to deliver to the buyer an aggregate quantity of LNG which equals the ACQ for each contract year of the term. Taking this to the next level of detail, the seller will deliver a scheduled series of LNG cargoes which (in theory at least—see below) should add up to the ACQ. Where, as is usual, the SPA requires the seller to deliver a defined quantity of LNG by reference to the aggregate calorific value of an aggregate number of cubic metres of LNG, and the SPA contains a quality specification which allows the seller to deliver LNG in a range of calorific values (see below), it will be apparent that the seller could accelerate the point at which it satisfies the aggregate calorific value delivery requirement by consistently delivering LNG at the higher end of the calorific value scale. (ii) The full cargo lot. A particular unit of measurement of LNG which is sometimes employed in an SPA is the full cargo lot. This is not an absolute measure of LNG since it reflects only the quantity of LNG which is contained within a particular LNG ship (including heel (33-003)), and this is a variable amount since it will depend upon the characteristics of the individual LNG ship size. The customary expectation in an SPA is that the parties will contract around the expectation of delivery of a full cargo lot in respect of a particular cargo of LNG, and this will ordinarily shape the seller’s delivery failure liability and the buyer’s purchase commitment (see below). This is not an absolute proposition, however, as an SPA could also address part-cargo volumes of LNG in several places (whether directly or by implication): (a) The buyer’s take and pay or take or pay commitment. This could be determined on a cargo-by-cargo basis (see below) and so would relate to the full cargo lot, but where an SPA defines the buyer’s obligation by reference to units of LNG over a particular period of time (e.g. an ACQ measured in calorific values and set over a contract year) then the buyer’s obligation could be quantified through part-cargo measures in order to reach the target. This is where the round-up and round-down provisions of an SPA (see below) apply, to reconcile the difference between a volumetric target and the capacity of the LNG ships used to deliver that volume. (b) The seller’s liability for off-specification LNG.

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Because the existence of off-specification LNG could be discovered part way through the loading or unloading of a full cargo lot and the buyer could be relieved from the obligation to take delivery of the further part of the LNG cargo (see below) then a part-cargo construction (at least in terms of how the cargo is treated economically) becomes an operational possibility. (c) LNG bulk-breaking. Where an LNG project is founded applies bulk-breaking then the buyer’s obligations in respect of the taking delivery of LNG will be set by reference to volumes of LNG (measured typically by reference to calorific volumes) and the notion of a full cargo lot as a principal delivery measure becomes inconsistent. (iii) Round-up and round-down. The ACQ for a contract year in an SPA (whether before or after the application of any adjustments (see below) and any make up (see below)) will translate to a particular aggregate number of cubic metres of LNG which have to be delivered to the buyer by the seller in satisfaction of the seller’s obligation. There is no guarantee of a perfect correlation between the ACQ and the LNG shipping capacity which is set in respect of the contract year under the annual delivery programme provisions of an SPA (33-007), particularly where changes are made to an agreed annual delivery programme to modify a particular LNG ship and its carrying capacity. Consequently the reality is that it could become apparent, towards the end of a contract year, that in volumetric terms the total quantity of delivered LNG could be more or less than the required ACQ, and could lead to something less than a full cargo lot. Something might need to be done in an SPA to address this disparity. 5 To reconcile the ACQ with the total delivered quantity of LNG in respect of a contract year an SPA could provide that (at the option of the seller or the buyer) the ACQ will be increased by whatever additional quantity of LNG is necessary to round up to the next full cargo lot. This round-up LNG quantity will be added to the ACQ for the contract year (and will form part of the buyer’s take and pay or take or pay commitment (see below)), and it could also count as a deduction from the ACQ for the next following contract year (and so, in effect, is a form of carry forward (see below)). As an alternative solution, the ACQ could be reduced by whatever deducted quantity of LNG is necessary to round down to the last full cargo lot. This round-down LNG quantity, as a deficiency to the current contract year’s ACQ, could be added to the ACQ for the next following contract year. An SPA could also provide that round-up is applied by the seller to the ACQ at the time of setting the annual delivery programme (where the need for a round-up could be predicted), and that round-down could be applied towards the end of the contract year (when the impact of the adjustments and make up recovery is better understood). (iv) GHV adjustment. A similar formulation to round-up and round-down which appears in some SPAs addresses the situation where, in calorific terms (rather than in the volumetric terms which are considered above), the total quantity of delivered LNG in respect of a contract year is or will be more or less than the required ACQ. Similar provisions to those described above as round-up and round-down could be applied in the SPA, in what is sometimes called a “GHV adjustment” provision, to adjust the aggregate calorific volume of LNG which is due to be delivered when compared to the ACQ. 6 (v) Seven-day LNG. To take account of the occasional unpredictability of LNG shipping an SPA could allow for a moderate amount of slippage in the delivery of LNG in respect of a contract year. Through a provision, often called “seven day LNG”, LNG which was scheduled for delivery towards the end of one contract year and which was in fact delivered in the first week of the following contract year will be treated as having been delivered in the preceding contract year and not in the actual (following) contract year. 7 (vi) Excess LNG. If the seller believes that it will produce a quantity of LNG in a contract year (which could be determined before the start of that contract year, or during that contract year) which is in excess of the applicable ACQ for that contract year (which

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could be called “excess LNG” or “surplus LNG”) then, unless the seller has the right and the opportunity, or even the obligation, to sell that “excess LNG” to another buyer, there are several options for the seller’s management of that excess LNG under the SPA: (a)The excess LNG could be automatically added to the ACQ for purchase by the buyer in accordance with the existing terms of the SPA (which increases the ACQ and the buyer’s take and pay or take or pay commitment (see below)). (b)The seller is obliged to offer the excess LNG to the buyer for purchase on a priority basis and otherwise in accordance with the existing terms of the SPA (which is effectively a call option for the buyer which, if accepted by the buyer, increases the ACQ and the buyer’s take and pay or take or pay commitment), with a right of the seller to sell the excess LNG to a third party if the buyer does not accept the purchase opportunity within a defined timeframe. (c)At the seller’s option, the excess LNG could be added to the ACQ for purchase by the buyer in accordance with the existing terms of the SPA (which is effectively a put option for the seller which increases the ACQ and the buyer’s take and pay or take or pay commitment) or the excess LNG could be offered to a third party for purchase. (d)The seller could offer the excess LNG to the buyer and to any third party for purchase pari passu and on a nonpriority basis (which, if accepted by the buyer, would increase the ACQ and the buyer’s take and pay or take or pay commitment). (e)The excess LNG could be made available to the buyer for the recovery of an accrued make up position (see below) in priority to any form of sale. In each of the above scenarios the pricing of such excess LNG will also need careful consideration in the SPA. Except where excess LNG is made available to the buyer to recover an accrued make up position (for which a zero price could apply—see below), excess LNG could be priced at the contract price (13-001), or it could be priced at a premium to the contract price where the commercial opportunity to access the excess LNG represents additional value for the buyer, or it could be priced at a discount to the contract price where the operational ability to dispose of the excess LNG represents additional value for the seller. Under an FOB-based sale the buyer might also wish to reserve a condition that, where the buyer is the subject of a put option in favour of the seller, any excess LNG must be capable of being delivered in a full cargo lot and within a defined LNG ship size, to protect the buyer from being obliged to arrange LNG shipping for a relatively small volume of excess LNG. Correspondingly, under a DES-based sale the seller might wish to reserve a condition that, where the seller is the subject of a call option in favour of the buyer, any excess LNG must be capable of being delivered in a full cargo lot and within a defined LNG ship size, to protect the seller from being obliged to arrange LNG shipping for a relatively small volume of excess LNG. Where the seller is in a position to produce excess LNG and the buyer is in a position to recover make up LNG (see below) the buyer will require the seller’s commitment always to deliver the buyer’s make up ahead of taking advantage of the opportunity to sell excess LNG (whether to the buyer or to any third party). This is particularly so where the seller is subject only to a reasonable endeavours obligation (41-020) to deliver make up. The natural reaction of the seller would be to sell incremental LNG as excess LNG at the contract price, or even at a premium to the contract price, rather than to deliver that LNG to the buyer at a zero price. This is matter which is usually also dealt with in the attributed order (see below). (vii) The attributed order. A particular cargo of LNG will have a particular quantity characterisation within the SPA (for example, a cargo could be any of a commissioning cargo, a cargo which is delivered in the ordinary course of the SPA, a make up cargo, a force majeure restoration cargo or excess LNG). These different quantity characterisations could enjoy different treatments under the SPA (principally relating to whether they satisfy the buyer’s take and pay or take or pay commitment under the SPA (see below) or whether they expose the seller to a delivery failure liability (see below) where not delivered) and the corresponding LNG could require to be paid for at a number of different price points (for example, at a zero price, at the contract price or at a discount from or at a premium to the contract price). This differentiation of character and value applies in the whole to LNG which is delivered by the seller in a contract year and could also apply as a microcosm within the content of a single cargo of LNG. To make clear the extent of the buyer’s rights and the seller’s obligations under the SPA therefore the SPA could recite a hierarchy (often called the “attributed order”) to apply a deemed order in which LNG is delivered by the seller, © 2023 Thomson Reuters.

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to allow the discipline of the various quantity characterisations of the SPA (and their respective pricing consequences) to be maintained. In such an attributed order the total amount of LNG which is delivered to the buyer over the course of the contract year could be deemed to have been delivered, for example, in the following order: Firstly

In satisfaction of the ACQ

Secondly

To the recovery of any accrued make up entitlements

Thirdly

To the recovery of any force majeure restoration quantities

Fourthly

To the delivery of excess LNG

A point to note here is that in contrast to how excess gas is addressed in the attributed order in a pipeline gas sale (12-014), in the sale of LNG a quantity of excess LNG arises as a distinct event, only after the ACQ has been delivered. For this reason excess LNG usually is recited in the attributed order in an SPA. 8 (viii) Upward flexibility and downward flexibility. The SPA will describe an ACQ but that quantity measure could be subject to adjustment (within defined limits which are expressed as a percentage of the ACQ) by the exercise of upward and/or downward flexibility rights in favour of the seller and/or the buyer. These flexibility rights are a valuable commodity to a party with the right to exercise them under an SPA because of the ability they offer to arbitrage other opportunities around the SPA, but they will have some consequences to the party against whom they are exercised. Whether upward and/or downward flexibility rights can be negotiated to apply in an SPA in favour of a party will depend on the degree of commercial leverage which that party enjoys at the time of negotiating that SPA: (a) Upward flexibility. The seller could use an upward flexibility right to dispose of additional LNG to the buyer in a contract year, and this essentially represents a put option for the seller. For this reason the upward flexibility quantity will typically be priced at the contract price or at a discount to the contract price. The seller would exercise an upward flexibility right where doing so would be more attractive than relying on the seller’s excess LNG rights or an opportunity to sell LNG to a third party. From the buyer’s perspective, however, the seller’s upward flexibility right represents a diminution of the buyer’s ability to buy additional LNG from elsewhere on better terms. The buyer could use an upward flexibility right to acquire additional LNG from the seller in a contract year, and this essentially represents a call option for the buyer. For this reason the upward flexibility quantity will typically be priced at the contract price or at a premium to the contract price. The buyer would exercise an upward flexibility right where doing so would be more attractive than relying on the buyer’s excess LNG rights or an opportunity to buy LNG from a third party. From the seller’s perspective, however, the buyer’s upward flexibility right represents a diminution of the seller’s ability to sell additional LNG elsewhere on better terms. (b) Downward flexibility. The seller could use a downward flexibility right to reduce the supply of LNG to the buyer in a contract year (possibly for operational reasons to avoid what would otherwise be a seller’s delivery failure liability or to enable the seller to sell the downward flexibility quantity of LNG elsewhere for a better price). From the buyer’s perspective, however, the seller’s downward flexibility right represents a reduction in the quantity of LNG which the buyer had originally planned to buy from the seller, possibly leaving the buyer with the need to make good the deficit from elsewhere. The buyer might have a right to make good the downward flexibility quantity in the following contract year at the contract price or at a discount to the contract price. The buyer could use a downward flexibility right to reduce the offtake of LNG from the seller in a contract year (possibly for operational reasons to avoid what would otherwise be a buyer’s failure to take liability or to enable the buyer to buy the downward flexibility quantity of LNG elsewhere for a better price). From the seller’s perspective, however, the buyer’s downward flexibility right represents a reduction in the

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quantity of LNG which the seller had originally planned to sell to the buyer, leaving the seller with the need to sell that LNG elsewhere. The seller might have a right to make good the downward flexibility quantity in the following contract year at the contract price or at a premium to the contract price. Under an SPA the following issues will additionally apply in respect of the provision of upward and downward flexibility for a seller and a buyer: (a) The seller’s upward flexibility. Whether the buyer’s obligation to accommodate the seller’s upward flexibility quantity is a firm or reasonable endeavours obligation; whether the buyer has sufficient LNG regasification capacity (whether in absolute terms or relative to purchase commitments which the buyer has to other sellers) and shipping capacity (in the case of a FOB-based sale) to accommodate the seller’s upward flexibility quantity; whether the upward flexibility quantity which is delivered by the seller in a contract year will count as a carry forward against the buyer’s commitments for the following contract year; whether the seller’s upward flexibility rights will have priority over the buyer’s excess LNG sales rights, which is particularly relevant where the buyer has only a reasonable endeavours obligation to accommodate the seller’s upward flexibility quantity; the price at which the seller’s upward flexibility quantity will be paid for. (b) The buyer’s upward flexibility. Whether the seller’s obligation to accommodate the buyer’s upward flexibility quantity is a firm or reasonable endeavours obligation; whether the seller has sufficient LNG production capacity (whether in absolute terms or relative to sales commitments which the seller has to other buyers) and shipping capacity (in the case of a DES-based sale) to accommodate the buyer’s upward flexibility quantity; whether the upward flexibility quantity which is taken by the buyer in a contract year will count as a carry forward against the buyer’s commitments for the following contract year; whether the buyer’s upward flexibility rights will have priority over the seller’s excess LNG sales rights, which is particularly relevant where the seller has only a reasonable endeavours obligation to accommodate the buyer’s upward flexibility quantity; the price at which the buyer’s upward flexibility quantity will be paid for. (c) The seller’s downward flexibility. Whether the buyer’s obligation to accommodate the seller’s downward flexibility quantity is a firm or reasonable endeavours obligation; whether the buyer has corresponding shipping flexibility (in the case of an FOB-based sale) to accommodate the seller’s downward flexibility quantity; whether the downward flexibility quantity which is not delivered by the seller in a contract year will be made good by addition to the SPA commitments for the following contract year (and whether that would be firm or at the buyer’s or the seller’s option); whether the seller’s downward flexibility rights will have priority over the buyer’s excess LNG purchase rights, which is particularly relevant where the buyer has only a reasonable endeavours obligation to accommodate the seller’s downward flexibility quantity; the price at which a later make good quantity which is equal to the seller’s downward flexibility quantity will be paid for. (d) The buyer’s downward flexibility. Whether the seller’s obligation to accommodate the buyer’s downward flexibility quantity is a firm or reasonable endeavours obligation; whether the seller has corresponding shipping flexibility (in the case of a DES-based sale) to accommodate the buyer’s downward flexibility quantity; whether the downward flexibility quantity which is not taken by the buyer in a contract year will be made good by addition to the SPA commitments for the following contract year (and whether that would be firm or at the buyer’s or the seller’s option); whether the buyer’s downward flexibility rights will have priority over the seller’s excess LNG sales rights, which is particularly relevant where the seller has only a reasonable endeavours obligation to accommodate the buyer’s downward flexibility quantity; the price at which a later make good quantity which is equal to the buyer’s downward flexibility quantity will be paid for. In an MSPA the quantity of LNG to be sold by the seller and bought by the buyer will be a fixed quantity which is defined in 32-020 the confirmation notice. This could be a single cargo of LNG. The confirmation notice will specify the contract quantity of the cargo, in mmBtu, which represents the volume of LNG which the seller is obliged to deliver and which the buyer is obliged

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to pay for, and in each case it triggers the seller’s liability for failure to deliver LNG and the buyer’s liability for a failure to take delivery of LNG. 32-021 Loading LNG into a ship and taking delivery of LNG from a ship is an inexact science and is often the case that marginally more or less LNG than is represented by the contract quantity is loaded and/or delivered. To address this the confirmation notice could also provide for an operational tolerance (sometimes called a “cargo tolerance” or an “operational tolerance”) whereby the contract quantity is defined as a fixed amount subject to a plus or minus x% variation. A particular issue is whether the remedies for the seller's failure to deliver or for the buyer's failure to take delivery should be applied subject to application of the operational tolerance in determining the extent of each party’s failure.

Footnotes 5 6 7 8

See P-22. See P-23. See P-24. See P-25.

End of Document

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Price Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Price 32-022 Historically the price of LNG in a long term sales contract was set as a reflection of the energy economics of the destination market into which the LNG was being sold. Thus, between the three predominant LNG import markets of north Asia (China, Japan, Korea and Taiwan), Europe and the US (when the US was an LNG importer), LNG was priced as follows: (i) North Asia. Because of little or no import pipeline gas supplies to compete with, LNG was priced against movements in the pricing of crude oil and its products, as the predominant competing fuel. For Japanese LNG imports this was set by reference to the averaged prices of a basket of monthly crude oil imports into Japan (known variously as the Japanese Customs Cleared price, the Japanese Crude Cocktail price or the JCC price, where the data used to calculate the JCC price is published by the Japanese government every month, with the resultant price made available by the Petroleum Association of Japan). (ii) Europe. Competition for LNG imports from pipeline gas imports and indigenous pipeline-delivered gas production has meant that the pricing of European LNG imports has typically been set by reference to competing gas prices (such as the NBP price) and the value of crude oil futures (such as the forward Brent price), often with other energy indices (such as defined electricity market prices) included too. (iii) The United States. The US has a well-established natural gas market. LNG imports (when they were a feature of the US energy scene) were typically priced by reference to prevailing gas prices, notably by reference to a netback against the Henry Hub price (see below). The situation in the US has seen a complete and very dramatic reversal in recent years, however. Whilst Henry Hub pricing continues to operate as a benchmark for domestic gas prices, the discovery of significant volumes of indigenous shale gas has eliminated the need for the US to be a major importer of LNG. The US has become a major LNG exporter, with prices often set as a factor of the Henry Hub price. 32-023 A number of market-based indices have developed as the basis for setting LNG prices: (i) Henry Hub. The Henry Hub is a physical meeting point in Louisiana for a large number of intra-state and inter-state gas gathering and transmission pipelines and is the principal price-setter for the North American gas market. Amalgamated reported trading prices from the Henry Hub are used to set the price for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX). Pricing LNG against the Henry Hub price could expose the buyer to a price which reflects a passthrough of the costs of upstream gas exploration and production (and the risk that the seller could be tempted to gold-plate those costs, knowing that the buyer will be paying them). For this reason the buyer could prefer to price the LNG (wholly or in part) by reference to a destination market-based index.

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(ii) JKM. The Japan Korea Marker (known properly as Platts JKM™) is an LNG benchmark price assessment for spot physical LNG cargoes (referenced in spot deals, tenders and short, medium and long term contracts) to give an average price of cargoes which are delivered ex-ship into China, Japan, South Korea and Taiwan. Quoted prices for LNG on the JKM trade in US dollars ($) per mmBtu. JKM is sometimes criticised as being a relatively illiquid index, which is generated by the reported prices of a relatively limited number of market players, particularly in comparison with an exchange-based gas price such as TTF (see below). JKM pricing is also exposed to intra-year seasonality, reflecting Asia winter peaks. (iii) TTF. The Title Transfer Facility (TTF) is a virtual trading point for natural gas in the Netherlands which facilitates trading in futures and physical and exchange trades in the Dutch gas market. Quoted prices for gas at the TTF are based on standardised exchange-traded products, and trade in Euros (€) per megawatt hour. Since the inception of the TTF in 2003 traded volumes have grown exponentially, particularly since TTF prices have become the principal benchmark for pricing LNG imports into Europe, and the TTF has overtaken the NBP as Europe's most prominent gas pricing benchmark. TTF has also seen an influx of speculators and non-physical market participants. TTF’s entrenched position and its suitability as the principal benchmark for pricing European LNG imports and gas flows is increasingly being questioned however (see below). (iv) Other hub prices. Other regional gas hubs, where quoted prices are based on exchange traded products, include the NBP in the UK (6-002), PEG/TRF (in France), PVB (in the Iberian Peninsula), THE (in Germany, which was created in 2021 by the merger of two German gas hubs Gaspool and NetConnect Germany), PSV (in Italy) and VTP (in Austria). 32-024 The key risk with a market index for the determination of a price for LNG is that the index becomes disconnected from the underlying supply and demand fundamentals of the LNG business, such that the index then ceases to be relevant as a truly market-reflective proxy for the pricing LNG. This risk has long been recognised where LNG is priced by reference to crude oil price movements (and where, historically, the mitigants to this risk have included price caps and floors (13-012), S-curve pricing (13-012) and price review mechanisms (Ch.14)) and it has also manifested itself in respect of the TTF in the second half of 2022, where some commentators believe that TTF no longer represents a balanced supply/demand model for European gas pricing. Other regional hubs are suggested to be more reflective of local gas market fundamentals, although several of them presently lack sufficient liquidity to be reliable as a benchmark for pricing gas. The divergence between the three LNG import markets of north Asia, Europe and the US has over time been replaced by a divergence between LNG imports into north Asia (described as Pacific Basin trades) and LNG imports into Europe and south America (described as Atlantic Basin trades), with arbitrage opportunities for LNG producers existing between Pacific Basin prices and Atlantic Basin prices. Whilst there is still no single, global price for LNG which is applied in all the major import markets, the widespread pricing of LNG off the basis of a single market-based index (such as JKM), with positive and negative differentials, could bring such a possibility closer. 32-025 The following price constructions can be found in SPAs: (i) Fixed price. A fixed price is common in the sale of LNG under an MSPA: The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be US$6.00mmBtu

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(ii) Oil index price. Indexed, rather than fixed, prices for LNG are common in term sales of LNG. As a starting point for the indexation exercise, LNG could be priced by reference to the movements on a published, transparent crude oil price index: The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be 10% of the Brent Price applicable on the first day of the LNG cargo’s delivery window

The downside of this formulation is that it exposes the seller to the risk of falling revenues from the sale of LNG where there is a sustained reduction in crude oil prices, and that it exposes the buyer to the risk of paying high LNG prices where there is a sustained increase in crude oil prices. To manage this risk of volatility (for both parties) the price could be subject to the application of a cap and a collar: The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be 10% of the Brent Price applicable on the first day of the LNG cargo’s delivery window, provided that: (1)if the Brent Price has equalled or exceeded US$90/bbl for more than 90 days prior to the first day of the LNG cargo’s delivery window then the Brent Price will be deemed to be US$90/bbl; and (2)if the Brent Price has equalled or fallen below US$40/bbl for more than 90 days prior to the first day of the LNG cargo’s delivery window then the Brent Price will be deemed to be US$40/bbl

This cap and collar formulation could also be reflected through an S-curve price provision (13-012): The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be 10% of the Brent Price applicable on the first day of the LNG cargo’s delivery window, provided that: (1)if the Brent Price has equalled or exceeded US$90/bbl for more than for more than 90 days prior to the first day of the LNG cargo’s delivery window then the Contract Price will be deemed to be 8% of the Brent Price; and (2)if the Brent Price has equalled or fallen below US$40/bbl for more than 90 days prior to the first day of the LNG cargo’s delivery window then the Contract Price will be deemed to be 12% of the Brent Price.

(iii) Gas index price. As an alternative to oil price indexation, the LNG price could be indexed by reference to market gas prices. The production of LNG which was made available for delivery to buyers on the US Gulf Coast heralded the introduction of the Henry Hub gas trading price: The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be the Henry Hub Price applicable on the first day of the LNG cargo’s delivery window x 115% + US$2.00mmBtu

In the above price construction the fixed monetary component is intended to compensate the seller for the costs of gas liquefaction. This number is often a contestable item in LNG sale and purchase negotiations between a seller and a buyer (and lower unit costs of gas liquefaction, which could become apparent as part of the improvements to the overall technology and economics of an LNG production project, would also produce a lower number to be charged by the seller). (iv) Netback pricing. This is a price payable for LNG which more closely reflects the value of the LNG in the destination market, to which the LNG is to be delivered and benefits the buyer by reducing the risk of inconsistency between the price paid by the

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Price, UKBC-GASLNGS 493298760 (2023)

buyer to the seller for LNG and the revenue flowing to the buyer from the on-sale of that LNG in the destination market. Consequently, in a destination market netback price construction the price paid by the buyer is calculated as an objective, published price in the destination market (the market element), minus a defined monetary value (the deduction, which could cover transportation and associated costs), to give the netback price: The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be the JKM Price applicable on the first day of the LNG cargo’s delivery window minus [US$3.00/mmBtu] [agreed freight costs] (provided that in no event will the Contract Price be less than US$00.00/mmBtu)

(v) Index basket pricing. In a manner reflective of the pricing of gas using a basket of indices (13-006) the seller could elect to sell LNG on the basis of a combination of production market and destination market prices, in an attempt to limit price volatility: The Contract Price for all quantities of LNG made available by the Seller at the Delivery Point (expressed in US$/mmBtu) will be [50% HH Price applicable on the first day of the LNG cargo’s delivery window x 115% + US$2.00mmBtu] and [50% JKM Price applicable on the first day of the LNG cargo’s delivery window minus US$3.00/mmBtu] (provided that in no event will the Contract Price be less than US$00.00/mmBtu)

End of Document

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4

Take and Pay, Take or Pay, UKBC-GASLNGS 493298753 (2023)

Take and Pay, Take or Pay Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Take and Pay, Take or Pay 32-026 The buyer’s failure to take delivery of LNG, as a precursor to the buyer’s liability under a take and pay or a take or pay commitment, will be triggered by a failure to take delivery of LNG from the seller’s LNG ship in a DES-based sale and by a failure to make an LNG ship available for loading LNG under an FOB-based sale, in each case in accordance with the LNG ship scheduling requirements which apply under the SPA. 32-027 In the AIEN LNG MSPA (6-002) the applicable confirmation notice specifies the quantity of LNG which the buyer will take delivery of and pay for, and where the buyer fails to do so (except for reasons of force majeure affecting the buyer, the seller’s default or the buyer’s right to reject off-specification LNG) then the buyer will pay to the seller an amount equal to the contract price multiplied by the quantity of LNG which the buyer failed to take delivery of. Alternatively, under the AIEN LNG MSPA the buyer could pay liquidated damages to the seller in an amount specified in the confirmation notice. This is take and pay. Take and pay is also the predominant model for term sales of LNG from US Gulf of Mexico production facilities. The buyer undertakes to take delivery of specified quantities of LNG during the lifetime of the sales contract and makes a cargo shortfall payment in the event of a failure to do so. There is ordinarily no right for the buyer to make good the payment which it has made for a cargo which it has failed to lift, in the manner of a make up right in a take-or-pay formulation. Flexibility for the buyer could be afforded by the provision in the contract of a right of the buyer to cancel or to suspend a particular cargo, upon giving requisite period of notice and upon paying a defined fee. 32-028 The take or pay formulation is typically crafted slightly differently in an SPA in comparison with the construction in a GSA (16-004), although the net result will be the same in that the relevant provisions each create a minimum delivery and offtake obligation for the buyer and a guaranteed revenue stream for the seller. In an SPA the annual take or pay quantity (ATOPQ) which is the buyer’s target for a contract year (y) is the adjusted ACQ (AACQ) for that contract year, where the AACQ in turn is derived from the ACQ for that contract year and where the ACQ is subject to a number of upwards and downwards adjustments (where the actual adjustments which apply will be a product of how the particular SPA is negotiated): (i) Upward adjustments. The ACQ will be increased by any round-up quantities (RUQ), upwards gross heating value adjustments (GHVA), seller upward flexibility quantities (SUFQ), buyer upward flexibility quantities (BUFQ) and force majeure restoration quantities (FMRQ) for the contract year and also by any round-down quantities (RDQ), and force majeure restoration quantities (FMRQ) carried forward from the preceding contract year; and (ii) Downward adjustments. The ACQ will be decreased by any round-down quantities (RDQ), downward gross heating value adjustments (GHVA), seller downward flexibility quantities (SDFQ) and buyer downward flexibility quantities (BDFQ) for the contract year and also by any round-up quantities (RUQ) carried forward from the preceding contract year. In summary, in light of the above

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Take and Pay, Take or Pay, UKBC-GASLNGS 493298753 (2023)

construction the ATOPQ for the purposes of an SPA could be derived as follows (where (y) represents a contract year and (y-1) represents a preceding contract year):

ATOPQ y =

AACQ =

ACQ y

+

-

RUQ y

RDQ y

GHVA y

GHVA y

SUFQ y

SDFQ y

BUFQ y

BDFQ y

FMRQ y

RUQ y-1

RDQ y-1 FMRQ y-1

32-029 Once the AACQ target has been identified in the manner described above then the take or pay calculation in an SPA could go in one of two directions: (i) Annualised take or pay. Under the first option the buyer’s take or pay obligation will be read as the buyer’s performance against the AACQ. The total quantity of LNG which is taken delivery of by the buyer in a contract year will be measured against the demands of the AACQ, but with credit also being given to the buyer for: (a)any quantities of LNG which were not delivered by the seller for certain reasons, such as the seller’s delivery failure (whether or not the seller is relieved by force majeure) or where the seller is exercising scheduled maintenance rights or interruption rights; and (b)any quantities of LNG which were not taken delivery of by the buyer for certain reasons, such as the buyer’s exercise of scheduled maintenance rights, interruption rights or suspension rights or for force majeure or for offspecification LNG reasons. At the end of the contract year a resultant annual deficiency (measured as the difference between the AACQ for the contract year and the quantity of LNG (if any) which the buyer has taken delivery of in respect of that contract year, after the application of the credits mentioned above) determines the extent of the take or pay payment which will be due from the buyer to the seller. This formulation differs from the take or pay formulation which is found in a GSA in that in an SPA the credits mentioned above are subsequently applied to the ATOPQ in order to determine the extent of the buyer’s performance deficiency, rather than that they form part of how the ATOPQ is actually defined at the outset, but this formulation is closer in appearance to the take or pay formulation in a GSA than the second option. (ii) Cargo-by-cargo take or pay. Under the second option, the buyer’s take or pay obligation will be assessed on a cargo-by-cargo basis. The scheduling provisions of an SPA will identify a number of LNG cargoes for delivery in respect of a contract year (which will, in the aggregate, equate to the AACQ—but this is the last point of reference to the AACQ which appears in the provision

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Take and Pay, Take or Pay, UKBC-GASLNGS 493298753 (2023)

which is described here). Where the buyer announces that it will fail, or actually fails, to take delivery of a scheduled LNG cargo (other than where the failure was attributable to force majeure affecting the buyer, the seller’s failure to deliver the LNG cargo for any reason, the buyer’s right to reject an off-specification LNG cargo or the buyer’s exercise of scheduled maintenance rights, interruption rights or suspension rights) then the buyer will be obliged to make a take or pay payment to the seller, calculated as the relevant LNG cargo quantity multiplied by the contract price. Sometimes, in mitigation of the liability to which the buyer would be exposed the seller could undertake (usually through a reasonable endeavours obligation) to resell the LNG which the buyer has not taken delivery of. The net proceeds of sale which are realised by the seller in this “mitigation sale” formulation would be applied as an offset to the take or pay payment which the buyer is obliged to pay the seller. A cargo-by-cargo take or pay obligation of the buyer gives the seller more immediate cashflow than an AACQ-based take or 32-030 pay option, since a take or pay payment is made by the buyer immediately following a failure to take delivery of an LNG cargo rather than that the buyer has the remainder of the contract year to make good its failure to take delivery of LNG through scheduling more, or larger, LNG loadings. It is apparent that in either of the above options the buyer’s take or pay obligation is effectively absolute—it is set at 100 per cent of the AACQ (with credits) in the first formulation, and at the full cargo lot on a cargo-by-cargo basis in the second formulation. There is no obvious room for the take or pay obligation to be set as a high percentage (but less than 100 per cent) of the AACQ, in contrast to how the take or pay formulation is often determined in a GSA. It could also be possible to apply both take or pay formulations within the same SPA, with provision that there would be a reconciliation and payment adjustment between the parties if, for example, the buyer had made a take or pay payment in respect of an individual cargo within the contract year but over the course of the contract year the buyer had also managed to take delivery of an aggregate quantity of LNG which matched the ATOPQ. 32-031 The seller will need to consider whether the quantum of a take and pay payment or a take or pay payment which is made by the buyer will always be sufficient to fully compensate the seller for all the loss or liability to which the seller might be exposed by the buyer's failure to take delivery of LNG (and particularly so where the seller is obliged to effect a mitigation sale (16-005), which could reduce the value of the payment to the seller). In some circumstances the seller could be exposed to the risk of the shut in of continued LNG production because of a buyer's failure to take delivery (against which risk the seller would hope to apply a right to dispose of the LNG elsewhere). End of Document

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Make Up and Carry Forward, UKBC-GASLNGS 493298763 (2023)

Make Up and Carry Forward Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Make Up and Carry Forward 32-032 An SPA could provide for a make up right (17-002) to apply in favour of the buyer where the buyer has made a payment for a quantity of LNG which it did not take delivery of (whether that payment is characterised as a take or pay or a take and pay payment – see above). The buyer’s make up right could take the form of a firm obligation or a reasonable endeavours obligation of the seller to schedule a volume of make up LNG for delivery in a contract year, applicable after the buyer has taken delivery of the AACQ for that contract year. This in turn will go to a consideration of how the AACQ is set (as a make up gate) as the precursor to a realistic possibility that the buyer will be able to recover make up. The lifting of LNG to be taken to recover accrued make up (from a preceding contract year) could be predicted when setting the annual delivery programme for a contract year, unless it was possible to schedule make up for lifting in the same contract year that the buyer made a corresponding payment by an agreed modification to the current annual delivery programme. The ability of the buyer to secure improved flexibility in this regard in an SPA will be conditioned by the buyer’s ability to engineer within-contract year changes to the annual delivery programme (33-007). A cargo-by-cargo take or pay obligation of the buyer gives the seller more immediate cashflow (see above) but this is typically not matched by an equally swift make up recovery right for the buyer, which still has to wait until it has performed its offtake obligations for the contract year before making a recovery and which ordinarily cannot catch up with a make up recovery which closely follows a take or pay payment. 32-033 The seller might insist that make up LNG must be delivered in a full cargo lot and so the seller will be entitled to defer the delivery of LNG as make up until enough has accrued to constitute a full cargo lot. This is an artificial argument, however, which can make it more difficult for the buyer to recover its position through the make up mechanism. The proper characterisation of how the recovery of make up should operate is that the seller will deliver LNG to the buyer, some of which will be invoiced and paid for at the contract price and some of which will be invoiced for at a zero price to reflect the reduction of the make up bank. The buyer would argue that make up recovery is a pricing discipline, rather than that it must be expressed as an issue of physical LNG volumes. If the seller is able to deliver excess LNG in respect of a contract year (see above) the buyer could require a priority right to access that LNG in recovery of its accrued make up position, rather than the seller has the right to sell that excess LNG to the buyer or to any third party. This matches the attributed order of delivery (see above). Otherwise, similar issues to those found in relation to pipeline gas sales will apply in respect of how make up is priced, the buyer’s remedy for the seller’s failure to deliver make up when scheduled and the buyer’s recovery of accrued but unredeemed make up rights at the end of the lifetime of the SPA. In the latter case an option to note under an SPA, as an alternative to a possible extension of the term of the SPA to run off an accrued but unredeemed make up balance or the cash out of such a balance, would be to recharacterise a number of LNG cargoes in the last contract year as make up recoveries. Such a formulation emphasises the notion of make up as a financial, rather than as a physical, tool to measure the flow of LNG. The buyer’s carry forward right (17-010) less obviously exists in the context of LNG deliveries than it does with a pipeline gas sales arrangement. Additional quantities of LNG which the buyer agrees to take in a contract year beyond the base level

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Make Up and Carry Forward, UKBC-GASLNGS 493298763 (2023)

of the ACQ, which could be any of a round-up quantity, excess LNG or an upward flexibility quantity (see above), typically apply only to increase the buyer’s offtake for that contract year and do not apply so as to reduce the ACQ for the following contract year. On the other hand, the offset of a round-up quantity from a contract year into the following contract year’s ACQ is in principle a carry forward quantity. End of Document

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The Seller’s Delivery Failure, UKBC-GASLNGS 493298758 (2023)

The Seller’s Delivery Failure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content The Seller’s Delivery Failure 32-034 Whereas a seller’s shortfall in respect of pipeline gas deliveries is measured by a quantity failure against the nominated quantity (19-002), the seller’s delivery failure (and the buyer’s remedy) in respect of LNG deliveries is measured by reference to time and in relation to the delivery of individual LNG cargoes (based on the seller’s failure to load the buyer’s LNG ship in an FOBbased sale or the seller’s failure to arrive on time with its own ship in a DES-based sale). This is reflective of the ship-delivered nature of the commodity. The first issue to note is the manner of the definition of a seller’s delivery failure in respect of an LNG delivery. It is not typically the case that an SPA will oblige the seller to deliver a defined quantity of LNG to the buyer at the delivery point within a full cargo lot such that, although the bulk of that quantity is delivered on time, any deficiency in the metered delivered quantity versus the defined full cargo lot quantity would constitute a seller’s delivery failure in respect of that particular delivery. That said, some MSPAs have sought to introduce a test for the seller’s delivery failure which is based on such a parameter, where the quantity of LNG which is actually delivered within any particular LNG cargo is a matter of operational importance to the buyer. 9 An individual quantity deficiency in the seller’s delivery could also count towards an annualised failure of the seller to deliver the AACQ as an overall requirement if an SPA is geared towards delivery of the AACQ as an absolute quantity of LNG, rather than a series of individual LNG cargoes which together should add up to the AACQ (see above). Rather, the seller’s obligation to deliver LNG, and the measure of the seller’s failure to meet that obligation, will typically be defined according to the scheduling provisions in the SPA. A failure of the seller to deliver LNG to the buyer against the required timings of a scheduled LNG cargo (determined by the annual delivery programme, a specified loading schedule and by any more detailed timetabling) will prima facie evidence a delivery failure by the seller. 32-035 An SPA might afford some latitude to the seller in terms of how the seller’s delivery failure is measured. In a DES-based sale the measure of delay of the seller’s LNG ship to reach a defined point at the unloading port by (or within) a defined time window might be subject to a grace period of say 24 hours; only if the seller’s LNG ship has not then arrived will a declaration of the seller’s delivery failure be triggered. Correspondingly, where LNG is sold in an FOB-based sale the grace period, and the seller’s failure, will be determined by the readiness (or not) of the seller to load the buyer’s LNG ship at the loading port by (or within) a defined time window. An SPA might also seek to import a sliding scale, against which the seller’s failure will be measured. If the seller is late in the performance of its obligations, but only just so, the remedy afforded to the buyer under an SPA for the seller’s delivery failure might be reduced accordingly; only where the seller’s lateness exceeds the high point of the scale will the maximum remedy for the seller’s delivery failure be applicable under an SPA (and ultimately there comes a point where a late delivery becomes a non-delivery). From the buyer’s perspective, however, an SPA which creates the concepts of a late cargo and a missed cargo could be unattractive. The SPA, from the buyer’s perspective, might be better phrased in absolute terms to say that any failure of the seller to deliver LNG by the scheduled time is just that, for which the buyer should be compensated accordingly. The buyer may be uninterested in defining the nuances of a late performance (whether slightly late or very late) where it regards any late performance as a total performance failure. 32-036

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The Seller’s Delivery Failure, UKBC-GASLNGS 493298758 (2023)

The remedy for a seller’s delivery failure will need to be agreed in the SPA. Where the seller is likely to fail, or fails, to deliver a scheduled LNG cargo (other than where the failure was attributable to force majeure affecting the seller or the buyer’s failure to take delivery of the LNG cargo for any reason) then the seller will be obliged to make a monetary payment to the buyer. There are several ways in which this payment could be calculated. As a starting point this payment could be determined by reference to the actual, proven loss to the buyer which accrues from the seller’s delivery failure (subject to the exclusion of a party’s liability for consequential losses under the SPA (36-008), a possible obligation of the buyer to mitigate the seller’s liability, and a possible cap on the seller’s liability, which could be set at the full value of the undelivered LNG cargo). 32-037 In the interests of improved predictability, and moving away from a remedy which obliges the buyer to prove its actual losses (mindful also that the buyer might not have an actual loss in some circumstances, where it has been able to make good the seller’s delivery failure from other sources of available LNG), the SPA could employ either of the following formulations: (i) Full value with mitigation. The payment due from the seller is calculated as the undelivered LNG cargo value (based on an estimated quantity, multiplied by the contract price), without an obligation of the buyer to prove its actual losses. In mitigation of the liability to which the seller would be exposed the buyer could undertake (usually through a reasonable endeavours obligation) to purchase replacement LNG to make good the LNG which the seller has not delivered. Where a mitigation sale is effected the final amount payable by the seller would be the incremental cost (if any) incurred by the buyer in purchasing the replacement LNG. (ii) Limited value. The payment due from the seller is calculated as the undelivered LNG cargo value (based on an estimated quantity, multiplied by the contract price, capped at a defined percentage (less than 100 per cent) of the LNG cargo value), without an obligation of the buyer to prove its actual losses and without an obligation of the buyer to purchase replacement LNG to make good the LNG which the seller has not delivered, in the form of liquidated damages. This could also be represented as a deliver or pay (DOP) payment. 10 Where, as part of the seller’s failure to deliver a scheduled LNG cargo, the buyer’s LNG ship has been delayed in berthing or has been detained at the loading port (in an FOB-based sale) the seller could additionally be liability to pay demurrage to the buyer (33-010). In a DES-based sale the seller could berth an LNG ship at the unloading port, fail to deliver an LNG cargo, and sail away. The seller as the transporting party, should not expect to recover demurrage from the buyer for delay to the LNG ship in this circumstance. Rather, the seller could be required to pay an excess berthing charge to the buyer. 32-038 A further issue to consider is the possibility of a wilful default by the seller in the delivery of an LNG cargo to the buyer. It is possible that a seller could fail to deliver an LNG cargo to a buyer in favour of selling it elsewhere for a better return and incurring the seller’s delivery failure liability under the SPA as a consequence of doing so (particularly in the case of a DESbased sale where the seller could decide to take advantage of a more lucrative diversion opportunity but without the obligation to offer any benefit sharing to the buyer (see above)). The problem for a buyer where a wilful default by the seller in the delivery of a particular LNG cargo takes place is that the buyer has ordinarily limited (and has acknowledged the adequacy of) its remedy for a seller’s delivery failure in the SPA (see above). The buyer can do nothing to prevent, nor to profit from, the seller’s wilful default beyond recovering the agreed remedy for the seller’s delivery failure under the SPA (unless the SPA is drafted to apply an open liability, with the removal of the consequential loss exclusion (36-008), for the commission by a party of a defined act of wilful misconduct (36-008) under the SPA, which could allow the buyer to make a greater monetary recovery if its actual losses arising from the seller’s breach of the SPA exceed the liquidated damages which are otherwise payable). It might also be that provisions allowing the buyer to terminate the SPA for the seller’s failure to deliver LNG could apply (39-005), depending on the quantum of the non-delivered LNG, but this might not always be an attractive remedy for a buyer.

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The Seller’s Delivery Failure, UKBC-GASLNGS 493298758 (2023)

To reduce the risk of wilful default by the seller the SPA could contain a provision whereby the failure of a seller to deliver a scheduled LNG cargo would ostensibly trigger the seller’s delivery failure provisions of the SPA in favour of the buyer, but with an exception for where the buyer can prove the commission of an act of wilful default by the seller. In such a case in a DES-based sale the undelivered LNG cargo could be treated as a deemed diversion by the seller (see above), but with a proviso that all of the incremental profits from the diversion sale will accrue to the buyer. This provision would at least remove the economic incentive for the seller to deliberately default on delivering an LNG cargo to a buyer in favour of selling it elsewhere for a better return. Alternatively, an agreed limitation on the payment which is due from the seller in the event of a delivery default could be expressly disapplied in the event of a wilful default by the seller. 11 Depending on how it has been drafted in an SPA, a deliver or pay provision in an SPA could disapply the risk of an accusation of wilful default by the seller since it allows the seller to price the option of a delivery failure under the SPA, in favour of a better sales opportunity elsewhere, but with the tacit acknowledgment of the buyer.

Footnotes 9 10 11

See the AIEN LNG MSPA (6-002), which describes the seller’s delivery failure by reference to undelivered LNG volumes against the expected delivery quantity of a particular LNG cargo. See P-26. See P-27.

End of Document

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Invoicing and Payment, UKBC-GASLNGS 493298764 (2023)

Invoicing and Payment Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Invoicing and Payment 32-039 In a DES-based sale the seller will deliver an invoice to the buyer after completion of the discharge of the cargo from the LNG ship at the unloading port (following on from the right and responsibility of the buyer to measure and report to the seller the calorific value of the LNG being delivered). The seller’s invoice will recite the total calorific value of the LNG so discharged, multiplied by the contract price. Against the product of that calculation will be offset any values which represent any relief available to the buyer from the obligation to make payment under the SPA, such as where the buyer is recovering make up or a price discount from a previous seller’s delivery failure. The resultant net amount under the invoice will determine the extent of the buyer’s payment obligation. The invoice should also reflect the agreed tax allocation between the parties. In an FOB-based sale the seller will deliver an invoice to the buyer after completion of the loading of the cargo into the LNG ship at the loading port, where the invoice will apply the quantity of LNG metered at the point of loading. The seller’s invoice will recite the contents outlined above in respect of a DES-based sale and will determine the extent of the buyer’s payment obligation. In both of the above cases the invoice could be accompanied by a wider statement of LNG flows, recognising the ongoing status of the attributed order of LNG deliveries (see above). 32-040 Where the invoicing for LNG delivered depends upon a metered quantity of LNG, the SPA could also recognise the need for the submission of a provisional invoice by the seller, reflective of the need to await some final analysis of the LNG and determination of the metered quantity or if the measurement equipment is not functioning properly. There will then be a reconciliation between the provisional and the final invoice, and an adjustment payment either way if provisional payment has already been made by the buyer. In either of the DES or the FOB formulations, where a buyer has elected not to take delivery of a cargo of LNG the seller should still deliver an invoice to the buyer which recites an attributed value of the LNG cargo which would otherwise have been delivered (often called the “deemed delivered amount”), based on the notional volume of LNG to have been delivered multiplied by the contract price, in order to trigger the buyer’s take and pay or take or pay liability in respect of the LNG cargo. Where a seller has failed to deliver an LNG cargo when required the establishment of the seller’s delivery failure liability to the buyer could require the seller to deliver a statement to the buyer which recites an attributed value of the LNG cargo which was not delivered. Following on from this the buyer will invoice the seller for the requisite amount. The SPA might also reserve a right to the buyer to calculate that statement for itself where the seller has failed to do so within a defined time. The buyer will wish for the SPA to preserve an express set-off right which lets the buyer set off the cost consequences of the seller’s delivery failure liability to the buyer (including demurrage claims and excess boil-off charge claims) against amounts otherwise due for payment from the buyer to the seller. In respect of the background verification checks performed by the buyer and the seller in respect of each other the existence of an LNG cargo diversion (see above), or an LNG cargo swap (2-019) which requires an additional cash balancing payment, could require the seller to send an invoice to and to receive payment from a person other than the buyer. End of Document

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Quality Specification and Off-Specification LNG, UKBC-GASLNGS 534049317 (2023)

Quality Specification and Off-Specification LNG Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Quality Specification and Off-Specification LNG 32-041 The SPA will recite a required quality specification for the LNG to be sold and delivered, in an appendix to the SPA. The compositional requirements of the LNG will be stated, and the key element will be the thermal value of the LNG (which is typically set out as a range (with upper and lower limits) of Btus per scf. A wide range in the thermal value benefits the seller in mitigating the risks of a delivery of off-specification LNG, but it could cause uncertainty for the buyer in light of thermal value limits at the receiving terminal and could lead to the need to spike a cargo in order for the LNG to come within those limits. 32-042 A failure of the LNG to comply with the quality specification will trigger the off-specification LNG provisions in the SPA. The impact of these provisions on the seller and the buyer will be determined by a combination of four elements: (i) which party had awareness of the off-specification event; (ii) when that awareness first became apparent; (iii) the election which the buyer makes as to whether or not to take delivery of off-specification LNG; and (iv) what the seller’s liability and the buyer’s remedy should be for the off-specification LNG delivery (or non-delivery). These elements will differ slightly between FOBbased sales and DES-based sales. (i) FOB-based sales. Compliance with the quality specification is determined at the loading port, and assumes that the LNG is in a gaseous state. The seller ordinarily would not accept a test for determining the quality of the LNG which is conducted at the time when the LNG is unloaded after transportation on an LNG ship because of the attendant uncertainty associated with the risk of contamination of the LNG after it has left the loading port. The seller measures for compliance of the LNG with the quality specification prior to and during loading, and after the completion of loading the seller sends a notice to the buyer which confirms the actual quality specification of the loaded LNG. The following situations should be considered: (a)The seller becomes aware that the LNG is off-specification prior to loading: –the seller gives prompt notice of the off-specification LNG event to the buyer; –the buyer gives notice to the seller of the estimated remedial treatment costs in respect of the off-specification LNG (which could be incurred at the loading port or at the unloading port); –the buyer uses reasonable endeavours 12 to accept the off-specification LNG 13 ; –if the buyer accepts the off-specification LNG then it is treated as a sale of LNG in the ordinary course, except that the seller reimburses the buyer’s remedial treatment costs in respect of the off-specification LNG up to a value of (say 25) % of the cargo quantity 14 multiplied by the contract price; and 15 –if the buyer rejects the off-specification LNG then it is a deemed seller’s delivery failure. (b)The seller becomes aware that the LNG is off-specification during loading: –the principles in point (a) above apply to the part of the cargo which is yet to be loaded; and –the provisions of point (c) below apply to the part of the cargo which has already been loaded.

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Quality Specification and Off-Specification LNG, UKBC-GASLNGS 534049317 (2023)

(c)The seller becomes aware that the LNG is off-specification after loading has completed: –the seller gives prompt notice of the off-specification LNG event to the buyer; –the buyer gives notice to the seller of the estimated remedial treatment costs in respect of the off-specification LNG (which could be incurred at the unloading port); –if the buyer can treat the off-specification LNG to meet the quality specification the buyer accepts the offspecification LNG and it is treated as a sale of LNG in the ordinary course, except that the seller reimburses the buyer's direct losses and expenses (which would include remedial treatment costs), liabilities and third party claims up to a value of (say 50) % of the cargo quantity multiplied by the contract price; and –if the buyer can not treat the off-specification LNG to meet the quality specification then the seller reimburses buyer's direct losses and expenses (which would include remedial treatment costs), liabilities and third party claims up to a value of 100% of the cargo quantity multiplied by the contract price, and it is also a deemed seller delivery failure. If the buyer rejects the off-specification LNG before it has been loaded it is the seller’s responsibility to dispose of that LNG. If the buyer rejects the off-specification LNG after it has been loaded, so that custody of that LNG has passed to the buyer then it becomes the buyer’s responsibility to dispose of that LNG (with any net sales proceeds being for the buyer’s own account). (ii) DES-based sales. Compliance with the quality specification is determined at the loading port, and assumes that the LNG is in a gaseous state. The seller measures for compliance of the LNG with the quality specification prior to and during loading, and after the completion of loading the seller sends a notice to the buyer which confirms the actual quality specification of the loaded LNG. 16 The following situations should be considered: (a)The seller becomes aware that the LNG is off-specification prior to unloading: –the seller gives prompt notice of the off-specification LNG event to the buyer; –the buyer gives notice to the seller of the estimated remedial treatment costs in respect of the off-specification LNG (which could be incurred at the loading port or at the unloading port); –the buyer uses reasonable endeavours to accept the off-specification LNG; –if the buyer accepts the off-specification LNG then then it is treated as a sale of LNG in the ordinary course, except that the seller reimburses the buyer's remedial treatment costs up to a value of (say 25) % of the cargo quantity multiplied by the contract price; and –if the buyer rejects the off-specification LNG then it is a deemed seller's delivery failure. It is the seller’s responsibility to dispose of that LNG. (b)The seller or the buyer becomes aware that the LNG is off-specification during unloading: –the principles in point (a) above apply to the part of the cargo which is yet to be unloaded; and –the provisions of point (c) below apply to the part of the cargo which has already been unloaded. (c)The seller or the buyer becomes aware that the LNG is off-specification only after unloading has completed: –the party with knowledge gives prompt notice of the off-specification LNG event to the other party; –the buyer gives notice to the seller of the estimated remedial treatment costs in respect of the off-specification LNG (which could be incurred at the unloading port); –if the buyer can treat the off-specification LNG to meet the quality specification the buyer accepts the offspecification LNG and it is treated as a sale of LNG in the ordinary course, except that the seller reimburses © 2023 Thomson Reuters.

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Quality Specification and Off-Specification LNG, UKBC-GASLNGS 534049317 (2023)

the buyer’s direct losses and expenses (which would include remedial treatment costs), liabilities and third party claims up to a value of (say 50) % of the cargo quantity multiplied by the contract price; and –if the buyer can not treat the off-specification LNG to meet the quality specification then the seller reimburses buyer’s direct losses and expenses (which would include remedial treatment costs), liabilities and third party claims up to a value of 100% of the cargo quantity multiplied by the contract price, and it is also a deemed seller delivery failure. If the buyer rejects the off-specification LNG after it has been unloaded and custody of that LNG has passed to the buyer then it becomes the buyer’s responsibility to dispose of that LNG (with any net sales proceeds being for the buyer’s own account). 32-043 For FOB-based sales and DES-based sales the knowledge that the LNG is off-specification could arise at a number of distinct points: before the cargo has been loaded onto the ship at the loading port; after the cargo has been loaded onto the ship at the loading port but before unloading of the cargo has commenced at the unloading port; during the unloading of the cargo at the unloading port; or after the unloading of the cargo (in whole or in part) has taken place at the unloading port. The knowledge of a party in respect of an off-specification LNG event should be actual rather than imputed (in the latter case this could be effected by the inclusion in the SPA of a formulation such “if the buyer becomes aware or ought reasonably to have become aware”). This could present evidential difficulties in the event of a dispute concerning an off-specification LNG event. 32-044 The remedy for off-specification LNG should be defined exclusively within in the SPA, and should not create or infer the giving of a warranty and representation (36-008) by the seller in respect of the quality specification (21-002). To do so could create an additional range of rights in favour of the recipient of the off-specification LNG.

Footnotes 12 13 14 15 16

The circumstances where it could be reasonable for the buyer not to accept the LNG could be stated—such as where the remedial treatment costs could exceed the defined measure of (say 25) % of the cargo quantity x contract price, or where acceptance could prejudice the safe operation of (or could cause damage to) the buyer’s facilities. Alternatively the buyer could have absolute discretion in respect of whether or not to accept the LNG. This measure should be the nominated or expected cargo quantity, rather than an estimate of the actual quantity of offspecification LNG. Paradoxically, whilst a higher liability cap would ostensibly be less attractive to a seller, it would also increase the likelihood that the buyer would take delivery of a quantity of off-specification LNG which the buyer would otherwise reject, where rejection could have a greater associated liability for the seller. This will be helpful for evidential purposes if there is a later dispute about the cause of an off-specification LNG event which becomes apparent at the unloading port.

End of Document

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Measurement, UKBC-GASLNGS 493298761 (2023)

Measurement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Measurement 32-045 The SPA will recognise the impracticality of locating all of the necessary measurement equipment on board an LNG ship, and the necessity of locating some of that equipment onshore at the relevant loading port or unloading port. The SPA might also provide for the appointment of an independent surveyor for the performance of certain measurement functions. In an FOB-based sale the buyer will ensure that the LNG ship has the equipment necessary to gauge LNG liquid levels and in-tank volumes, and to measure LNG pressure and temperature. The calorific value of LNG loaded (measured in millions of Btus) will be determined by the independent surveyor. The seller will provide and operate quality analysis equipment at the loading port which can collect LNG samples and provide LNG quality and composition data. The buyer will not have quality analysis check measurement equipment onboard the LNG ship; rather, the buyer will be given access to and will be entitled to rely on the results of the seller’s quality and composition analysis. Correspondingly, in a DES-based sale the seller will procure the on-ship equipment and the buyer will provide and operate the quality analysis equipment at the unloading port. 32-046 At the point of loading LNG (or unloading LNG, as appropriate) online gas chromatographs will allow a representative sample of LNG to be taken (vapourised to a gaseous form) and analysed to determine the molar fractions of the LNG stream (hydrocarbons and also the presence of other components in the LNG stream such as carbon dioxide, sulphur and hydrogen sulphide) to assess compliance with the quality specification of the SPA. Samples will be required to be kept for a period of time in case of a later dispute regarding quality specification compliance which would call them into evidence. LNG sampling and the determination of compliance with the quality specification could be done in accordance with the procedures set out in a facilities manual, provided that the procedures are also substantially consistent with defined applicable international standards. Provisions will also apply in the SPA relating to the standards required for the provision, operation and maintenance of the requisite measurement equipment, access and audit rights, measurement protocols and the resolution of measurement disputes in a manner broadly similar to the provisions described in relation to a GSA (Ch.22). End of Document

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Facilities and Commissioning, UKBC-GASLNGS 493298754 (2023)

Facilities and Commissioning Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Facilities and Commissioning 32-047 An SPA could provide for the application of facilities provisions and commissioning largely in the manner previously discussed in respect of pipeline gas deliveries (Ch.23). A particular issue to note is the manner in which LNG import or export facilities, and LNG ships which travel between those facilities, could be modified over time and which party to the SPA should be liable for the associated costs of modification. The following table illustrates a possible protocol for how this could be done, in respect of an FOB-based sale, addressing the allocation of the costs of the primary modification to LNG export facilities and LNG ships and also the consequential modification costs: REQUIREMENT FOR MODIFICATION

COSTS INCIDENCE

1.Modification to the seller’s LNG export facilities which is required by the domestic law of the seller’s country or at the seller’s volition

Seller

2.Modification to the seller’s LNG export facilities which is required by international law or standards

Seller

3.Consequential modification to the buyer’s LNG ships which is required as a reaction to 1

Seller

4.Consequential modification to the buyer’s LNG ships which is required as a reaction to 2

Buyer

5.Modification to the buyer’s LNG ships which is required by the domestic law of the buyer’s country or at the buyer’s volition

Buyer

6.Modification to the buyer’s LNG ships which is required by international law or standards

Buyer

7.Consequential modification to the seller’s LNG export facilities which is required as a reaction to 5

Buyer

8.Consequential modification to the seller’s LNG export facilities which is required as a reaction to 6

Seller

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Facilities and Commissioning, UKBC-GASLNGS 493298754 (2023)

These cost allocation provisions could also be accompanied by provisions relating to the exchange of relevant information between the parties, and possibly also to the need for one party to seek the consent of the other party to a proposed modification. These provisions are relevant only to the parts of the LNG export facility and of the LNG ship which actually interface with each other in the business of transporting LNG however. Modifications to an LNG export facility or to LNG ship which have no bearing on the facilities interface or to the loading or unloading of LNG should not be subject to these provisions. In LNG projects it is always a possibility that the seller will wish to develop additional gas liquefaction, LNG loading and port facilities in the future as part of a wider project expansion plan. An SPA could contain provisions which allow the seller to suspend the delivery of LNG to the buyer for a defined period of time to allow the existing and the new facilities to be integrated and re-commissioned. Whether this suspension is without liability to the seller, or whether the buyer should receive some compensation for facilitating it (such as a discounted price for certain future LNG volumes) will be a matter for negotiation in the SPA. End of Document

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Maintenance, UKBC-GASLNGS 493298757 (2023)

Maintenance Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Maintenance 32-048 An SPA could provide expressly for scheduled maintenance rights for the seller and the buyer in the manner previously discussed in respect of pipeline gas deliveries (Ch.24). On the other hand, the AIEN LNG MSPA (6-002) makes no provision for scheduled maintenance rights in respect of a party, and it not axiomatic that an SPA will contain express maintenance rights. The parties to an SPA could take the view that the manner in which the SPA defines the ACQ at the outset, and in which the SPA defines the annual shipping schedule, should necessarily build in some form of contingency within which each party could effect its maintenance requirements without the need for specific provision for maintenance in the SPA. The party which has the right under the SPA to set the annual shipping schedule could organise that schedule so that it can effect the maintenance which is required for that party’s facilities within that schedule, and the ability of a party to make permitted changes to the agreed shipping schedule could afford even more of an opportunity to effect any maintenance requirements. Provisions in the SPA which relate to the ability of a party to apply a measure of downward flexibility to the ACQ for a contract year could also be used by that party to effect any maintenance requirements. It may be, however, that longer-term maintenance could be required from time to time, despite the flexibilities mentioned above in respect of an SPA, for which an express scheduled maintenance right might also be required in the SPA. End of Document

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Force Majeure, UKBC-GASLNGS 493298750 (2023)

Force Majeure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 32 - LNG Sales Contract Content Force Majeure 32-049 LNG sold by the seller could be produced from a primarily identified source of raw gas or from an alternative source of raw gas (if the SPA allows such alternative sources to be applied), or it could be an already-produced cargo (or cargoes) of LNG which have been produced and traded in by the seller for performance of the SPA. LNG could also be produced by a seller from a wide set of integrated facilities producing LNG for a number of buyers, rather than from a single stand-alone LNG production facility, particularly in the case of a portfolio seller. Consequently the seller would be inclined to seek force majeure relief in the SPA for all the facilities associated with the production of LNG. Because of the relief which this could afford to the seller for a failure to perform its obligations under the SPA, in response the buyer may wish to exercise some control over the extent to which an otherwise wide range of facilities can be applied to the SPA. This could be done, for example, by pre-approving certain gas and LNG production facilities according to defined standards of operational excellence and allowing alternative facilities to be applied to the SPA only where the buyer has approved them beforehand. This is broadly equivalent to the principle of vetting LNG ships which are used in the performance of the SPA, whereby force majeure relief will usually be limited to an LNG ship which is actually employed in trade to support the SPA at any particular time and will not be forthcoming automatically in respect of a widely-defined fleet of ships. The buyer could require force majeure relief for the regasification facilities at which the buyer is planning to take delivery of LNG, but the seller could be reluctant to afford relief to the buyer in respect of a wide range of facilities in the case of an FOBbased sale, where the buyer could have choices as to where it will unload the cargo. End of Document

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Introduction, UKBC-GASLNGS 493298773 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues Introduction 33-001 This chapter assumes LNG will be transported at the point of its production by ship from a loading port (rather than by truck or by rail, which are also possibilities). To illustrate the necessary provision which is to be made under an SPA in respect of LNG shipping this chapter assumes a simple sequence of the loading of a cargo of LNG into an LNG ship at a loading port, the voyage of that LNG ship to an unloading port, and the discharge of that LNG cargo at the unloading port. Further activities which could take place after an LNG cargo has been loaded into an LNG ship include the ship-to-ship transfer of the LNG cargo in whole or the decomposition of the LNG cargo into a number of smaller lots ahead of arrival at the unloading port, and after an LNG cargo has been unloaded and put into storage it could be reloaded into an LNG ship at the unloading port for further transportation if the unloading port has LNG loading facilities. End of Document

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The Need for LNG Shipping, UKBC-GASLNGS 493298772 (2023)

The Need for LNG Shipping Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues The Need for LNG Shipping 33-002 LNG needs to be transported from where it is produced to where it is required to be delivered. Whether the seller has assumed responsibility for transporting LNG to the delivery point under a DES-based sale or whether the buyer has assumed responsibility for transporting LNG away from the delivery point under an FOB-based sale, whichever party has assumed responsibility for transporting the LNG (that is, the seller under a DES-based sale or the buyer under an FOB-based sale) will need to give some thought to the commercial arrangements which will be required to effect that transportation. It may be that the transporting party has its own LNG ship, which it is able to apply for the benefit of an SPA without entering into any formal shipping arrangement, but this is unlikely. The more typical proposition is that the transporting party will contract with a third party (which could be an affiliate of the transporting party, where that party’s corporate group owns and operates its own fleet, or which could be a genuinely independent and unconnected third party) for the reservation of shipping capacity through a charter party arrangement (considered further in Ch.34). The interface between the LNG shipping arrangements and an SPA can be illustrated thus:

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The Need for LNG Shipping, UKBC-GASLNGS 493298772 (2023)

End of Document

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LNG Ships, UKBC-GASLNGS 493298768 (2023)

LNG Ships Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues LNG Ships 33-003 An LNG ship is a self-propelled hull with the capability for loading, storing and unloading LNG in a constantly refrigerated state. LNG ships are classified according to the extent of their LNG-carrying capacity. These capacities range from between 5,000m 3 to 30,000m 3 of LNG (for littoral tankers, used often for small scale and bulk break projects), variously through 125,000m 3 , 130,000m 3 , 140,000m 3 , 145,000m 3 , 160,000m 3 and 175,000m 3 of capacity, up to 210,000m 3 (Q-flex) and 266,000m 3 (Q-max) for the largest LNG ships currently in service.

The operation of an LNG ship is characterised by two particular features: (i) Boil-off. The specialist feature of an LNG ship is the refrigerated containment system within which a cargo of LNG is transported safely and securely (subject to the inevitable vapourisation of a very small percentage of the LNG cargo (called “boil-off”), which could be diverted to the LNG ship’s engines for use as a fuel or which could be refrigerated on-board and returned to the containment system as LNG (by the process of reliquefaction). Boil-off not only reduces the overall volume of LNG which is contained in the LNG ship but it also contributes to an increase in the calorific value (1-007) of the remainder of the LNG cargo through the initial combustion of the lighter hydrocarbon fractions. This could cause problems where the quality specification in an SPA requires the delivery of LNG from an LNG ship within a certain calorific value range under a DES-based sale, leading possibly to the need to modify the composition of the LNG cargo at the unloading port in order to meet the required specification. Vapour return hoses will connect the LNG ship and the LNG loading or unloading facilities to deal with the physical management of the resultant natural gas vapours, and the SPA should address which party has title to those natural gas vapours (32-012). (ii) Heel. This is a minimum quantity of LNG which is retained in an LNG ship after the LNG cargo has been unloaded, in order to maintain temperature in the containment system for the ballast voyage back to the next LNG cargo loading. Under an FOBbased sale the buyer bears the obligation to retain the heel on-board the LNG ship prior to loading and after discharging an LNG cargo, and will also absorb the boil-off losses associated with a loaded LNG cargo, whereas these obligations will be borne by the seller under a DES-based sale. End of Document

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Conditions of Use, UKBC-GASLNGS 493298770 (2023)

Conditions of Use Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues Conditions of Use 33-004 It may be that a loading port is used by many different LNG ships, where LNG is being loaded by sellers to undertake DESbased sale commitments and by buyers to fulfill FOB-based sale commitments. The converse will apply to an unloading port, where LNG is being unloaded by sellers to fulfill DES-based sale commitments and by buyers to complete FOB-based sale commitments. Individual and multiple LNG ship movements through a loading port or an unloading port will need to be managed carefully. It is typically the case that, as a condition of entry to a port, the master of an LNG ship will (on behalf of the shipowner) be required to sign onto a form of contract which regulates the LNG ship’s access to the port, known variously as a “terminal access agreement” or as “conditions of use” (or COU). The necessity to execute the conditions of use could be referenced by an SPA, and the conditions of use could be publiclyavailable documents with visibility to all potential users of the port. There is inevitably a risk of loss or damage arising from collision between an LNG ship and the relevant port facilities. The conditions of use could describe a mutual hold harmless liability allocation model (36-002) to apply between the port owner and the shipowner in respect of damage to the port or the LNG ship, or alternatively a guilty party pays liability allocation model (36-002) might be imported into the conditions of use. Whichever method of liability allocation is adopted within the conditions of use will need to be reconciled with whatever insurance regime applies between those parties, and also with an SPA if the SPA imports a regime for the allocation of liability between the seller and the buyer. Ship-to-ship collisions (and the corresponding rights and liabilities of the relevant shipowners) will typically be dealt with as a private, bilateral arrangement by reference to applicable law and conventions, unless there is an express inter-shipowner accord in respect of any loading port or unloading port which allocates liabilities in a particular manner, entry into which by all shipowners using the port could be required by the conditions of use. 33-005 The conditions of use could address a number of other matters: (i) LNG ship movements. The timings of the arrivals into and the departure from the port (including estimated timings, arrival at the pilot boarding station (PBS) and proceeding to berth). (ii) Marine services. The provision of pilots, tugs, safety vessels, bunkers, victuals and LNG processing services in respect of an LNG ship using a port. (iii) Port operations. Acceptable weather limits, night-time and tidal restrictions, emergency procedures and circumstances in which the operation of the port can be suspended. Some or all of these matters could also be addressed in an SPA (including in the calculation of laytime and demurrage (see below) and whether the transporting party will contract directly for the provision of the marine services at its own expense or

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Conditions of Use, UKBC-GASLNGS 493298770 (2023)

whether the non-transporting party will provide them to the transporting party against a back-charge to the transporting party) and so there should be consistency of approach between the conditions of use and an SPA. A port owner might also develop a facility manual, which details the key operational characteristics of the port (including in relation to the provision of marine services (see above) and cooling-down or gassing-up services (see below)), which a transporting party will be required to acknowledge and comply with as a term of use of the port. From the transporting party’s perspective care will need to be taken to ensure that the content of the conditions of use and/or the facility manual (particularly in respect of the proposed allocation of liability between a port owner and a shipowner) does not create a position which is unacceptable to the shipowner’s P&I club insurers. End of Document

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Bills of Lading, UKBC-GASLNGS 493298774 (2023)

Bills of Lading Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues Bills of Lading 33-006 A bill of lading (sometimes called a “BoL” or “BL”) is a document issued by a shipowner (or, more commonly, by the master of the LNG ship acting on behalf of the shipowner) to a charterer, to acknowledge the shipowner’s receipt of a specified cargo for shipping on the charterer’s behalf in accordance with whatever terms have been agreed between the shipowner and the charterer (as set out in the bill of lading and possibly also within the terms of the charter party). A bill of lading evidences that the charterer’s cargo has been loaded on board a ship (such proof of shipment could necessary for customs clearance and insurance purposes and to evidence compliance with the terms of another contract), acts as documentary evidence of the charterer’s title to the cargo, and could also recite certain of the commercial terms of the required shipping arrangements (including the quantity of the cargo at the point of loading). Any number of signed original bills of lading can be issued in respect of the same cargo; the usual number is two (so that one is held by each of the shipowner and the charterer (assuming that the charterer is also the owner of the cargo)), although more could be issued (e.g. in favour of any third party lenders which have an economic interest in the cargo). The face of the bill of lading should recite the total number of originals which were issued. All of the originals will be discharged (and should be marked as such) when the cargo is delivered in accordance with the applicable instructions. The charterer could require the shipowner to perform the transportation service other than in accordance with the conditions indicated in the bill of lading, or even to deliver the cargo without a bill of lading; the shipowner will act in accordance with the charterer’s instructions but only as long as the shipowner is fully indemnified by the charterer against the risks of doing so. Most bills of lading will also be subject to the application of certain international rules which relate to the allocation of liability for loss of or damage to the LNG cargo between the shipowner and the charterer (notably the Hague Rules (1924), the HagueVisby Rules (1968) and the Hamburg Rules (1978)). End of Document

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The Annual Delivery Programme, UKBC-GASLNGS 493298769 (2023)

The Annual Delivery Programme Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues The Annual Delivery Programme 33-007 An SPA will provide a mechanism for determining the buyer’s requirements for LNG, the seller’s ability to meet those requirements and the logistical arrangements which will underpin the business of LNG loading, shipping and unloading between the seller and the buyer. Where there could be multiple cargoes of LNG due for delivery in each contract year the scheduling of LNG for delivery will typically be based around an annual delivery programme (ADP) for each contract year and around a more frequent within-contract year specific delivery schedule (see below). Cargo-specific arrangements will apply in respect of single LNG cargo sales under an MSPA and spot LNG cargoes. Under a DES-based sale the following formulation could, as an example, appear in respect of setting the annual delivery programme for a particular contract year: (i)Not less than (say) 90 days before the start of the contract year the buyer will give to the seller an indication of the total quantity of LNG which the buyer wishes to have delivered in that contract year. This quantity will be in a range of zero to the ACQ, subject to upwards or downwards adjustment under the SPA and possibly beyond the ACQ where an SPA conceives of excess LNG if the buyer can predict the need at the time of submitting that indication. The buyer could also indicate the number of LNG cargoes required for delivery in the contract year (by reference to LNG ship capacities and a pattern for delivery and unloading which the relevant loading port and unloading port can accommodate) in order to deliver that quantity, if the buyer is so able. (ii)Not less than (say) 75 days before the start of the contract year the seller will respond to the buyer with an indication of the total quantity of LNG which the seller is able to deliver in response to the buyer’s previously indicated requirements. (iii)Thereafter the buyer and the seller will consult on setting the annual delivery programme for the contract year, and not less than (say) 30 days before the start of the contract year one of them (typically the seller) will issue the final form of the annual delivery programme for the contract year. It is often a matter for debate between the seller and the buyer as to which party should have the final say in issuing the final form of the annual delivery programme. Once issued, the annual delivery programme will identify the total quantity of LNG to be delivered by the seller for the contract year, the number of LNG cargoes to be delivered by the seller and the delivery pattern for those LNG cargoes in the relevant contract year, and the LNG ship for each LNG cargo to be delivered by the seller (with indicative details of each LNG ship’s anticipated arrival, unloading and departure schedule). 33-008 It may be that the seller or the buyer will require a change to be made to the annual delivery programme after it has been issued. Such changes might be required for logistical reasons (e.g. to reflect changes in operational arrangements at the relevant unloading port or loading port), as a reaction to an event of force majeure affecting either of the parties or for purely commercial reasons (e.g. the seller or the buyer wants to deliver or to take delivery respectively of less or more LNG than has been scheduled under an SPA). Changes for operational reasons or to reflect the incidence of force majeure should in principle be capable of reconciliation by agreement between the parties, but a change for purely commercial reasons might be less capable of accommodation without some corresponding commercial incentive between the parties. Within an SPA the parties might be obliged to consult on making revisions to the annual delivery programme after it has been issued, with a proviso that the parties cannot unreasonably withhold their consent to a revision. It may, however, be reasonable

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The Annual Delivery Programme, UKBC-GASLNGS 493298769 (2023)

for a party to withhold its consent to a revision which is proposed for purely commercial reasons, since this would ostensibly undermine the basic economic accord between the parties. In support of this an SPA should be careful to restrict the ability of a party to disguise an ostensibly commercial change behind a purported operational reason. An SPA could also distinguish between changes to the annual delivery programme which are requested to be made more than a defined number of days before the impact of the proposed change and changes which are requested to be made in less than that number of days, with the presumption being recognised in an SPA that changes in the first category (sometimes called “permitted changes”) should be agreed and implemented without controversy because of the long-lead nature of the change, whereas changes in the second category (sometimes called “discretionary changes”) could require specific agreement between the parties because of the relative lack of notice. Changes could also be made to the annual delivery programme on the basis that the party requesting the change will compensate the other party for the reasonable costs and liabilities which were incurred by that other party in accommodating the requested change. The ability of the buyer to effect changes to an agreed annual delivery programme, by reference to the frequency of LNG ships and the size of the LNG ships, might also better help the buyer to recover an accrued make up position. End of Document

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The Specific Delivery Schedule, UKBC-GASLNGS 493298771 (2023)

The Specific Delivery Schedule Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues The Specific Delivery Schedule 33-009 The annual delivery programme will contain a significant amount of detail regarding the scheduling of LNG to be delivered in a contract year but once the annual delivery programme has been set it will inevitably be necessary to add further detail to the programme, to fine-tune the programme’s contents within the contact year as operational conditions (affecting the buyer or the seller) unfold. To this end an SPA (by way of example, by reference to a DES-based sale) will typically contain a mechanism by which the seller will provide to the buyer a rolling forward programme showing planned LNG cargo deliveries for the following threemonth period. It may be that the first month of that three-month period (sometimes called the “front month”) is firm and the second and third months are good faith best estimates; as the three-month programme rolls forward those second and third months become the first month and firm, and so on. This specific delivery schedule (sometimes also called a “ninety day programme”) will determine the exact order of satisfaction of the seller’s LNG delivery obligation and thus will be determinative of what constitutes a failure by the seller to meet that obligation (32-034). The specific delivery schedule might also be open to change after it has been finalised between the parties, broadly following the principles recited above in respect of changes to be made to the annual delivery programme. The provisions referred to above in respect of setting the annual delivery programme and the specific delivery schedule will not apply where LNG is sold as a cargo under a confirmation notice which is issued under an MSPA (6-004) (or otherwise in respect of the sale of a spot LNG cargo), because the MSPA will be geared towards the delivery of LNG on a specific LNG cargo basis. The MSPA will recite detailed timings for individual LNG ship movements in order to provide a basis for the rights, remedies and liabilities of the parties. End of Document

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Used Laytime, Allowed Laytime and Demurrage, UKBC-GASLNGS 493298775 (2023)

Used Laytime, Allowed Laytime and Demurrage Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues Used Laytime, Allowed Laytime and Demurrage 33-010 Under a DES-based sale there will be a series of procedures (often dictated by any applicable conditions of use (see above)) which govern the arrival of an LNG ship at the unloading port, starting with a reducing series of estimated time of arrival (ETA) declarations and ending with the arrival and berthing of the LNG ship such that it is then ready to commence the unloading of LNG. The timing of the arrival of the seller’s LNG ship at the unloading port in accordance with the agreed schedule for doing so will determine the seller’s liability for delivery failure, subject to upwards or downwards adjustment under the SPA and so the seller’s compliance (and ability to comply) with the arrival procedures will be key in making that determination. Under an FOB-based sale similar procedures will apply, except that they will necessarily be referenced to the arrival of the buyer’s LNG ship at the loading port and the readiness to commence the loading of LNG. The seller’s delivery failure will be determined by reference to the seller’s inability to load the buyer’s LNG ship when required and the arrival procedures for the buyer’s LNG ship will be linked to making that determination. An SPA will contain shipping-specific provisions relating to laytime and demurrage, which are not found in an agreement for the transportation of gas by pipeline, which are applied together to address the relationship between the responsibility of the non-transporting party (the buyer under a DES-based sale and the seller under an FOB-based sale) for ensuring the efficient operation of the loading port or the unloading port and the responsibility of the transporting party (the seller under a DES-based sale and the buyer under an FOB-based sale) to ensure the most economically efficient utilisation of the LNG ship. 33-011

The example discussed below in relation to laytime and demurrage relates to an FOB-based sale where the buyer is the transporting party. Similar principles will apply in the obverse to a DES-based sale, where the seller is the transporting party. Under the SPA the seller contracts to sell a cargo of LNG to the buyer with the understanding that the LNG will be lifted by ship by the buyer from the seller’s LNG production facilities. The buyer has contracted to hire an LNG ship from a shipowner under a charter party, wherein the buyer will pay a daily rate of hire to the shipowner for the use of the LNG ship for a defined period of time (34-006). Because the buyer is paying daily hire rates to the shipowner under the charter party the buyer wants the LNG ship to be on hire from the shipowner for the shortest possible period of time, since each day of unplanned hire means incurring another day of hire payment from the buyer to the shipowner, to the detriment over the overall economics of the LNG purchase for the buyer.

33-012 The buyer’s concern is that when the LNG ship arrives at the loading port to load the cargo of LNG the seller will be slow in loading the LNG cargo, or other events will occur which delay the loading, thereby exposing the buyer to the expense of an increased period of hire under the charter party through no fault of its own. To mitigate this risk to the buyer, the SPA will typically apply three elements together: (i) Allowed laytime. Sometimes (inaccurately) just called “laytime”, this is an objective measure of how much time, measured in hours, it should ordinarily take to allow the buyer’s LNG ship to be berthed safely at the loading port, to load the cargo of LNG, and to depart from the loading port. The allowed laytime calculation will be determined as a matter of contract by a number of

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Used Laytime, Allowed Laytime and Demurrage, UKBC-GASLNGS 493298775 (2023)

factors, including the size of the LNG ship and any restrictions at the loading port (such as night-time berthing restrictions, other LNG ship movements and prevailing tidal conditions), to give a defined figure of a specified number of hours. That base element of allowed laytime will also be the subject of possible extensions (see below). (ii) Used laytime. This is a subjective measure of how much time, measured in hours, was actually taken to allow the buyer’s LNG ship to be berthed safely at the loading port, to load the cargo of LNG, and to depart from the loading port. The figure for used laytime will be determined as a matter of fact and could be less than, or greater than, the amount of allowed laytime. (iii) Demurrage. This is a monetary amount, usually expressed in US$ per day (with pro rata calculation for a part day, so effectively giving an hourly demurrage rate), which the seller will pay to the buyer for the period of time by which used laytime exceeds allowed laytime. The demurrage rate will be specified in an SPA. It could be a fixed US$ amount (effectively a liquidated damage which is set to mirror the daily hire rate payable by the buyer under the charter party), or it could be an amount referenced as a straight pass-through of the daily hire rate payable by the buyer under the charter party, or it could be an amount quoted from publicly-available sources of suggested demurrage rates. 1 Whichever formulation is adopted, from the buyer’s perspective the demurrage rate should be set so that the buyer’s exposure to extra hire under the charter party is fully passed through to the seller. 33-013 Essentially, allowed laytime is a pre-determined, fixed amount of time under an SPA (subject to extensions) which reflects how long it should take to load the LNG cargo, used laytime reflects how long it actually did take to load the LNG cargo and so will be different in every case because it reflects real-time shipping activity at the loading port, and demurrage is the amount paid by the seller to the buyer to compensate the buyer for amount by which the used laytime is greater than the allowed laytime, to offset the buyer’s exposure to pay additional hire to the shipowner under the charter party. Demurrage should properly only be payable where the used laytime has exceeded the allowed laytime because of the acts or omissions of the seller. But not all reasons for delay in loading an LNG cargo will be the seller’s fault. To protect the seller, the allowed laytime calculation is usually subject to a number of events which will extend it—notably, where a delay in loading the LNG cargo is attributable to force majeure, adverse weather conditions or third party interventions such as compliance with loading port regulations (none of which are the fault of the seller) or where a delay in loading the LNG cargo is attributable to the acts of omissions of the buyer or of the master of the LNG ship. Extending the allowed laytime in these circumstances reduces the risk that the used laytime will exceed the allowed laytime and so reduces the risk that the seller will have to pay demurrage to the buyer. See the following example, which illustrates all of the above points together (and in which example the term running hours is used to indicate the passage of elapsed time, used to match up used laytime with allowed laytime):

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Used Laytime, Allowed Laytime and Demurrage, UKBC-GASLNGS 493298775 (2023)

Paradoxically, it is also possible that used laytime will exceed allowed laytime because of an act or omission of the buyer or the master of the LNG ship (rather than an act or omission of the seller or the application of any extraneous circumstances) in berthing the LNG ship, loading the LNG cargo, or causing the LNG ship to depart the berth when loading of the LNG cargo is complete. In such a situation the buyer’s LNG ship could remain at the berth at the loading port for longer than was scheduled. This should not trigger the seller’s liability to pay demurrage to the buyer (see above) but this could cause other problems for the seller, for which the seller feels it should be compensated by the buyer. The seller might, for example, become liable to other buyers who are scheduled to load LNG ships at the same berth, which they are unable to do because the original buyer’s LNG ship has not departed the berth on time. In these circumstances the buyer could be required to compensate the seller for the liabilities which arise from the buyer’s excess berth occupancy. This compensation, which is a form of demurrage and which is sometimes also called an “excess berthing charge” or a “port congestion charge”, could take the form of payment of a defined monetary amount by the buyer as a liquidated damage, or it could take the form of an obligation of the buyer to compensate the seller for whatever the seller’s monetary losses are (to be determined on a case-by-case basis, and possibly also subject to an obligation of the seller to demonstrate those losses to the buyer on an open-book basis and to an obligation of the seller to mitigate the extent of the loss to which the buyer would otherwise be liable). 33-014 Applying the previous example to this situation:

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Used Laytime, Allowed Laytime and Demurrage, UKBC-GASLNGS 493298775 (2023)

Where the buyer becomes liable to pay an excess berthing charge and the reasons for the delayed departure of the LNG ship are attributable to a failing of the LNG ship then the buyer, as the charterer, could seek to pass this liability back to the shipowner under the charter party (arguably because the LNG ship has failed to meet the applicable performance standards), resulting in an adjustment to the hire which is payable by the charterer. 33-015 Because used laytime is freely formed by actual circumstances an SPA will set out a methodology for determining when used laytime begins and ends. The buyer and the seller will each have different aspirations regarding the definition of this methodology. Key in this analysis is the concept of the notice of readiness (NOR). The NOR is a declaration from the master of an inbound LNG ship that the LNG ship is ready to proceed to berth and to load the cargo of LNG. This in turn will be subject to a number of deeming provisions in an SPA as to when the NOR is effective, relating to whether the NOR is given before, during or after the LNG ship’s scheduled arrival window (which itself is determined by the annual delivery programme and the specific delivery schedule (see above)), depending on the time when the LNG ship arrives relative to that arrival window, all of which could be structured as follows: LNG SHIP ARRIVAL AT THE LOADING PORT

EFFECTIVENESS OF THE NOR

Before the start of the arrival window

The earlier of when:

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Used Laytime, Allowed Laytime and Demurrage, UKBC-GASLNGS 493298775 (2023)

(i)the LNG ship is berthed and is ready to load; and (ii)midnight on the first day of the arrival window (in the latter case possibly also with the addition of a (say six hour) transit time for the LNG ship from the point of arrival to the berth) During the arrival window

When the NOR is given (possibly also with the addition of a (say six hour) transit time for the LNG ship from the point of arrival to the berth)

After the end of the arrival window

When the LNG ship is berthed and ready to load

The movement of an LNG ship through a loading port will be represented by a distinct number of steps, structured for example according to the following sequence (in respect of an FOB-based sale): 1

The LNG ship arrives at the PBS

2

The master of the LNG ship gives the NOR to the seller

3

The NOR becomes effective according to the SPA

4

The LNG ship proceeds from the PBS to the berth (transit)

5

The LNG ship is made all fast at the berth

6

Loading and natural gas vapour return hoses are connected to the LNG ship

7

The loading of the cargo of LNG begins

8

The loading of the cargo of LNG ends

9

Loading and natural gas vapour return hoses are disconnected from the LNG ship

10

The LNG ship’s departure paperwork is completed

11

The LNG ship leaves the berth

33-016 These steps could be taken as triggers for starting and ending used laytime according to the preferences of the seller or the buyer. The buyer will want used laytime to start as soon as possible and to end as late as possible, in the interests of increasing the possibility that used laytime will exceed the allowed laytime and that the seller will be required to make a demurrage payment to the buyer: 1

USED LAYTIME STARTS: The LNG ship arrives at the PBS

2

The master of the LNG ship gives the NOR to the seller

3

The NOR becomes effective according to the SPA

4

The LNG ship proceeds from the PBS to the berth (transit)

5

The LNG ship is made all fast at the berth

6

Loading and natural gas vapour return hoses are connected to the LNG ship

7

The loading of the cargo of LNG begins

8

The loading of the cargo of LNG ends

9

Loading and natural gas vapour return hoses are disconnected from the LNG ship

10

The LNG ship’s departure paperwork is completed

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Used Laytime, Allowed Laytime and Demurrage, UKBC-GASLNGS 493298775 (2023)

11

USED LAYTIME ENDS: The LNG ship leaves the berth

The seller, on the other hand, will want used laytime to start as late as possible and to end as soon as possible, in the interests of decreasing the possibility that used laytime will exceed the allowed laytime and that the seller will be required to make a demurrage payment to the buyer: 1

The LNG ship arrives at the PBS

2

The master of the LNG ship gives the NOR to the seller

3

The NOR becomes effective according to the SPA

4

The LNG ship proceeds from the PBS to the berth (transit)

5

USED LAYTIME STARTS: The LNG ship is made all fast at the berth

6

Loading and natural gas vapour return hoses are connected to the LNG ship

7

The loading of the cargo of LNG begins

8

USED LAYTIME ENDS: The loading of the cargo of LNG ends

9

Loading and natural gas vapour return hoses are disconnected from the LNG ship

10

The LNG ship’s departure paperwork is completed

11

The LNG ship leaves the berth

33-017 The agreed solution in an SPA for when used laytime starts and ends will be negotiated to be somewhere along this continuum. Under the BP model LNG MSPA for FOB-based sales 2 used laytime begins when the NOR is deemed effective and ends upon the completion of loading, when loading and vapour return lines have been finally disconnected.

Footnotes 1 2

See e.g. Platts LNG Daily, available at https://www.spglobal.com/platts/en/products-services/lng/lng-daily. Available at https://www.bp.com/en/global/bp-global-energy-trading/features-and-updates/technical-downloads/lngmaster-sales-and-purchase-agreement.html.

End of Document

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LNG Ship Approval and Inspection, UKBC-GASLNGS 493298776 (2023)

LNG Ship Approval and Inspection Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues LNG Ship Approval and Inspection 33-018 A number of provisions will apply to regulate the interface between LNG ships and the LNG loading/unloading facilities. Under an SPA the founding principle is that under a DES-based sale the buyer will wish to ensure that the seller’s LNG ship meets certain defined standards (both local and international) of construction, operation, specification and maintenance, including compliance with safety requirements, crewing and compatibility with the unloading port facilities. Correspondingly, under an FOB-based sale the seller will wish to ensure that the buyer’s LNG ship meets the same standards and in respect of the loading port facilities. To this end the following provisions could apply in an SPA: (i) Initial assessment of compatibility and LNG ship approval. To speed the process of ensuring LNG ship suitability an SPA could identify a list of pre-approved LNG ships which are agreed to be compatible with the seller’s loading facilities (under an FOB-based sale) or with the buyer’s unloading facilities (under a DES-based sale), where that list of approved LNG ships would be listed as a schedule to the SPA. This could require an extensive up-front programme of LNG ship vetting to ensure suitability and compatibility, which could include reference to various classification society and condition assessment standards (notably, the OCIMF SIRE ship inspection report programme). 3 (ii) Ongoing LNG ship inspection. Under a DES-based sale the buyer could have an ongoing right to inspect the seller’s LNG ship (which should be reflected by the reciprocal reservation, by the transporting party, of LNG ship inspection rights in the charter party (34-006)). The buyer could also require the provision of an alternative LNG ship in the event that a failure to meet a standard is found. Correspondingly, under an FOB-based sale the seller could require such inspection rights, and rights to request an alternative LNG ship. In either case such inspections should be geared towards ensuring that the LNG ship remains in compliance with the initial requirements of the up-front programme of LNG ship vetting to ensure suitability and compatibility, and should not represent a different or extended programme of LNG ship vetting in its own right. (iii) Admission of further LNG ships. During the term of an SPA further LNG ships could be added to the list of approved LNG ships—where the seller (under an FOB-based sale) or the buyer (under a DES-based sale) will have a right to inspect a proposed LNG ship and to conduct a comprehensive vetting exercise to confirm compatibility as a pre-cursor to addition to the list. (iv) LNG ship modification. Under a DES-based sale the seller will usually be free to modify its LNG ship as long as the defined standards in the SPA for an approved LNG ship continue to be met. Reciprocally, under an FOB-based sale the buyer will usually be free to modify its LNG ship as long as the defined standards in the SPA for an approved LNG ship continue to be met. LNG ship and facility modification costs are addressed at 32-047.

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LNG Ship Approval and Inspection, UKBC-GASLNGS 493298776 (2023)

Under an MSPA the same principles will generally apply but will be abbreviated to a requirement that an approved LNG ship is identified in the confirmation notice, and that any replacement of that LNG ship (prior to loading or unloading, as appropriate) will need the prior approval of the non-transporting party.

Footnotes 3

Available at https://www.ocimf.org/sire/about-sire.aspx.

End of Document

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Presentation, UKBC-GASLNGS 493298766 (2023)

Presentation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues Presentation 33-019 “Presentation” is a term used to describe the condition of an LNG ship’s tanks when they are empty of LNG. A particular feature of an FOB-based sale will be the condition of the LNG ship’s tanks at the point of arrival of the LNG ship at the loading port. Ideally those tanks will be cooled (with heel) and ready to load a cargo of LNG when the LNG ship arrives but the following situations could occur: (i)The LNG ship arrives at the loading port with its storage tanks warm and containing gas vapour (in which case coolingdown services will need to be provided at the loading port, to reduce the temperature of the storage tanks prior to loading an LNG cargo). (ii)The LNG ship arrives at the loading port with its tanks warm and containing an inert gas such as nitrogen (in which case gassing-up services (to displace the inert gas) and cooling-down services will need to be provided at the loading port). (iii)The LNG ship arrives at the loading port with its tanks cooled and ready to load LNG but the tanks warm up prior to the loading of an LNG cargo, in which case cooling-down services will need to be provided at the loading port. An SPA could describe an allocation between the seller and the buyer of the costs of providing any necessary cooling-down or gassing-up services at the loading port. A basic principle which an SPA might adopt is that the buyer will be responsible for the costs of the provision of such services in all circumstances, except where an act or omission of the seller has caused the LNG ship to need the provision of such services, in which case the seller could be responsible for those costs. There might be some equitable allocation of the costs between the seller and the buyer where the necessity for the corresponding services is attributable to an event which was not the fault of either party. End of Document

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Boil-Off, UKBC-GASLNGS 493298767 (2023)

Boil-Off Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 33 - LNG Shipping Issues Boil-Off 33-020 LNG is not an inert substance, in the same way as natural gas is in a pipeline or a storage tank or crude oil is in a ship, a pipeline or a storage tank. A particular volume of LNG, whether in an LNG ship or an LNG storage tank, will inevitably undergo a continuous physical process called “boil-off”, and the contracts for the sale and transportation of LNG will need to address this reality. LNG storage tanks provide highly effective, but not perfect, insulation in an attempt to keep the entirety of a quantity of LNG in its refrigerated state. In the boil-off process the surface area of a volume of LNG in a storage vessel will slowly warm up and evaporate, transitioning from a liquid to a gas. The resultant boil-off gas draws heat away from the remaining LNG (a process called “auto-refrigeration”). The boil-off gas will build up pressure in the storage vessel and will need to be extracted before the safe pressure limits of the vessel are breached. Once extracted the boil-off gas could be combusted, re-liquefied and returned to the LNG storage vessel or re-directed for use as a fuel in the LNG ship’s engines. Another consequence of the boil-off process is that because the lightest hydrocarbon fractions rise to the top of a volume in LNG in the storage vessel then it will be the methane element which boils off first. This will have the result of increasing the calorific value of the remaining LNG because the progressively heavier hydrocarbon fractions (1-002) will be progressively the last to boil off (a process called “ageing” or “weathering”). Boil-off is a continuous change of state of a volume of LNG from a liquid to a gas which therefore has two consequences: (i) over time the quantity of LNG will reduce (and, left unchecked, the boil-off process would continue until the entire volume of LNG had been transformed from a liquid to a gas); and (ii) there will be a change in the composition of the LNG as the LNG becomes richer. This could continue to the point where the LNG falls outside the calorific value ranges in the quality specification of the SPA (32-041). 33-021 Boil-off will be addressed in contracts for the sale and transportation of LNG as follows: (i) The charter party. The shipowner will typically warrant to the charterer in the charter party that the boil-off rate will not exceed a defined percentage of the LNG ship’s total LNG carrying capacity. This boil-off rate, and so the subject of the warranty, is typically in the range of 0.10 per cent to 0.25 per cent per day of the LNG ship’s carrying capacity (with lower percentages applying for newer LNG ships with more efficient insulation characteristics). If the actual boil-off rate of the LNG ship is proven to exceed the warranty limit the shipowner will compensate the charterer for the excess boil-off amount, multiplied by a defined monetary amount (and usually structured as an offset against the hire amount payable by the charterer). It could also lead to claim for a short delivery by the charterer, to the extent that this is not properly recognised and dealt with under the terms of the charter party. (ii) The SPA.

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Boil-Off, UKBC-GASLNGS 493298767 (2023)

A daily boil-off rate could be specified for a particular LNG ship which has been approved for the purposes of the SPA, where that rate will be set as a percentage of the LNG ship’s cargo-carrying capacity, similar to the manner of the calculation described above in respect of a charter party. Where under an FOB-based sale the used laytime for a buyer’s LNG ship exceeds the allowed laytime because of the seller’s fault (so triggering a seller’s liability to pay demurrage to the buyer) the seller could also be obliged to pay the buyer what is sometimes called an “excess boil-off charge”, as a monetary amount based on (and capped by) a multiplier of the daily boil-off rate, the LNG ship’s cargo-carrying capacity and the time by which used laytime exceeds allowed laytime. This payment is intended to compensate the buyer for the boil-off reduction to the LNG ship’s heel (where the LNG cargo has yet to be loaded) or to the LNG cargo itself (where the LNG cargo has loaded). Correspondingly, where under a DES-based sale the used laytime for a seller’s LNG ship exceeds the allowed laytime because of the buyer’s fault (so triggering a buyer’s liability to pay demurrage to the seller) the buyer could also be obliged to pay an excess boil-off charge to the seller, to compensate the seller for the boil-off reduction to the LNG ship’s heel (where the LNG cargo has been unloaded) or to the LNG cargo itself (where the LNG cargo has yet to be unloaded). (iii) The bill of lading. Unless the boil-off is not made good by reliquefaction, the quantity of LNG which is recorded on the bill of lading (33-006) at the point of loading will be greater than the quantity which is eventually discharged. This difference in quantities could lead the customs authorities at the unloading port to query whether the discrepancy represents an attempt to evade any applicable customs duties on the imported quantity. End of Document

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Introduction, UKBC-GASLNGS 493298782 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 34 - Charter Party Agreements Introduction 34-001 This chapter assumes that the party which has assumed responsibility for shipping LNG under an SPA proposes to contract with a third-party shipowner for the provision of LNG shipping services through a charter party. This chapter does not address the situation where a party also proposes to contract for the financing and/or the construction of a new LNG ship and so needs to consider the terms of the ancillary financing and shipbuilding arrangements. This chapter also focuses on the use of a charter party for the provision of a conventional LNG ship which is engineered solely for the purposes of loading, transporting and unloading a cargo of LNG, but also considers the necessary differences of arrangement for the provision of a ship which is capable of regasifying a cargo of LNG offshore and discharging the cargo (as regas) and for a ship which is capable of liquefying gas offshore to give LNG. End of Document

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The Meaning of a Charter Party, UKBC-GASLNGS 493298781 (2023)

The Meaning of a Charter Party Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 34 - Charter Party Agreements The Meaning of a Charter Party 34-002 In the context of shipping LNG, a charter party is a contract for the hire of an LNG ship, entered into between a shipowner and a charterer, whether, for the purposes of an SPA, that charterer is the LNG seller or the LNG buyer. Although the existence of a charter party would more obviously be expected where the shipowner and the charterer are unconnected parties, even where the party which has assumed responsibility under an SPA for transporting LNG has direct access to an LNG ship which its corporate group owns there will generally be an arm’s length charter party put in place between that party and its shipping affiliate in the interests of maintaining a clear separation of corporate interests and liabilities. The first distinction to note in the lexology of charter parties is that which exists between a bareboat (or demise) charter party and a full services charter party: (i) Bareboat charter party. This represents the lease of an LNG ship for a defined period of time during which the LNG ship is placed entirely at the disposal of the charterer by the shipowner, and the charterer assumes full responsibility for the provision of the LNG ship’s master, crew, stores and bunkers. The charterer also has sole responsibility for the operation and maintenance of the LNG ship and will be solely liable (as between the shipowner and the charterer) for any consequences of the LNG ship’s operation. Under a bareboat charter the charterer is the disponent owner of the LNG ship (that is, the charterer is a de facto owner of the LNG ship which temporarily displaces, and acts as, the true owner of the LNG ship). (ii) Full services charter party. This represents the provision of an LNG ship whereby the shipowner assumes full responsibility for the provision of the ship’s master, crew, stores and bunkers and the shipowner has sole responsibility for the operation and maintenance of the LNG ship, acting in accordance with the instructions of the charterer with regard to the LNG ship’s transit between ports. The full services charter party can be further distinguished between a voyage charter party and a time charter party. Under a voyage charter party the shipowner would provide the LNG ship for a defined voyage in exchange for the charterer’s payment of freight (see below); under a time charter party the shipowner would provide an LNG ship for a defined period of time in exchange for the charterer’s payment of hire (see below). 34-003 A charter party might be a bespoke agreement which results from negotiation between the parties and reflects the nuances of the particular SPA which it is intended to support, and it could also represent a hybrid structure between the forms of charter party outlined above which is arrived at by negotiation between the shipowner and the charterer. A contract of affreightment is sometimes used as a term to describe an arrangement whereby an LNG ship is contracted to undertake a defined series of voyages within a defined period of time, carrying a defined LNG cargo between a defined set of ports. Alternatively a shipowner and a charterer could enter into a form of call-off agreement, as a flexible arrangement whereby the charterer acquires a right of access to a shipowner’s fleet and arranges for the provision of a particular LNG ship from time to time according to pre-agreed commercial and legal terms.

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The Meaning of a Charter Party, UKBC-GASLNGS 493298781 (2023)

End of Document

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Charter Party Model Forms, UKBC-GASLNGS 493298778 (2023)

Charter Party Model Forms Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 34 - Charter Party Agreements Charter Party Model Forms 34-004 It is typically the case that the form of a charter party is settled through the use of a particular model form contract which has been developed and standardised between certain shipping industry groups and international oil companies as a starting point for amendment and further negotiation, the most notable of which are the following: (i) ShellLNGtime. Developed by Shell and first published in 2005 as ShellLNGtime1, revised and replaced in 2017 by ShellLNGtime2, this charter party is the most widely used model form for time charters (and also for voyage charters) for LNG transportation. (ii) GIIGNL Voyage Charter Party. Developed by the International Group of Liquefied Natural Gas Importers (GIIGNL) and published in 2012, this charter party is intended for use as a voyage charter for LNG cargoes. (iii) BIMCO/GIIGNL LNGVOY. Developed jointly by the Baltic and International Maritime Council (BIMCO) and GIIGNL and published most recently in 2016, this charter party is intended for use as a voyage charter for LNG cargoes. (iv) BARECON 2017. Developed by BIMCO and published in 2017, this charter party is widely used for bareboat charters (but is not LNG specific). End of Document

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Charter Party Terms, UKBC-GASLNGS 493298780 (2023)

Charter Party Terms Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 34 - Charter Party Agreements Charter Party Terms 34-005 In a charter party the charterer’s primary aim is to ensure that it has in place an agreement for the hire of an LNG ship for the transportation of LNG for the duration of the charterer’s requirements, by reference to a number of specific components: (i) Ship performance. The charterer will require the provision of an LNG ship which is capable of attaining certain minimum standards of performance. (ii) Hire. The charterer will require to pay an agreed level of hire for the LNG ship which meets the charterer’s economic expectations. (iii) Pass through of default. Ideally the charterer would require the shipowner to compensate the charterer for any loss or liability suffered by the charterer under or in connection with the SPA because of a failure of the LNG ship. The shipowner’s interests lie in securing a remunerative charter party which exposes the shipowner to the least possible liability to the charterer. Apart from obtaining an acceptable level of hire the shipowner will require the charter party to reflect the following minimum elements: (i) Off-hire. Off-hire represents the ability of the charterer to suspend the obligation to make hire payments to the shipowner. This represents a loss of revenue to the shipowner and so is something the shipowner will be keen to minimise. (ii) Isolation. The shipowner is in the business of providing an LNG ship for a defined period of time or purpose, and beyond that the shipowner will not wish to become implicated in the issues of the SPA. The key terms of a charter party are set out below (principally by reference to a full service charter party): 34-006 (i) Identification of the shipowner and the charterer. Identification of the parties to the charter party should be straightforward as between the shipowner and the charterer. The charterer could act as a principal in its own right or as the agent for a wider consortium. The shipowner could be nervous of the latter construction if it seeks to apply several liability between a group of different persons for the performance of the charter party. (ii) The provision of collateral support. There may be a discussion to be had about the form of collateral support (if any) to be offered by the charterer in support of its payment obligations under the charter party, which is particularly relevant to a long-term charter party. The issues

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Charter Party Terms, UKBC-GASLNGS 493298780 (2023)

associated with such collateral support will be especially relevant where the shipowner has sought to obtain financing from third party lenders for the construction of the LNG ship against the security of the revenue stream which a long-term charter party creates, where the shipowner’s lenders will be interested in the arrangements. The form of collateral support which is agreed in favour of the shipowner will typically be ancillary to, rather than an inherent part of, the charter party. (iii) Identification and condition of the LNG ship. The charter party will identify the LNG ship to which it relates and will, in a detailed schedule appended to the charter party, recite a physical description of the LNG ship, including details of the LNG ship’s cargo capacity, containment system, method of propulsion and safety management systems. The condition of the LNG ship will be determined at the point when it is first delivered from the shipowner to the charterer, and the schedule will also reference operational conditions relating to LNG storage tank capacities and filling and discharging rates. The charter party will also recite a series of operational conditions which the LNG ship will be required to comply with (e.g. relating to physical condition, classification by a recognised classification society, the possession of necessary certificates and compliance with defined safety case requirements). (iv) Master and crew. The charter party (except in the case of a bareboat charter) will require that the LNG ship is supplied with a suitablyqualified master and with an adequate number of officers and crew who meet minimum standards of competency and qualification. The charter party will also define the crew’s duties (in a general sense of performing the necessary voyages and the functions ancillary to the voyages). The crew will be paid by the shipowner. The charter party might also reserve a right for the charterer to send a number of its own representatives (called “supernumeraries”) to travel on the LNG ship. (v) Performance warranty. Under the charter party the shipowner will usually guarantee (as a warranty given on the date of delivery of the LNG ship to the charterer and deemed repeated throughout the term of the charter party) certain minimum levels of performance of the LNG ship, relating for example to matters such as average and maximum service speeds, fuel consumption, LNG loading and unloading rates and boil-off rates, to be measured over defined performance measurement periods. These performance levels are important because if the LNG ship fails to meet them then the charterer could be entitled to make a deduction from the hire (see below) of an amount which represents the performance deficiency and so the loss to the charterer (although in practice this could be difficult to quantify). (vi) Maintenance. Of relevance to longer-term charter parties, the charter party will describe the shipowner’s obligation to maintain the LNG ship and keep it in good repair for the duration of the charter party. From the charterer’s perspective the LNG ship should run minimal risk of breaking down and to this end the charterer might prefer an absolute obligation on the shipowner’s part to maintain the LNG ship in the same condition that it was delivered at the start of the charter party (perhaps with an exception for fair wear and tear); in contrast, the shipowner might prefer a more manageable maintenance obligation, such as one whereby the shipowner will exercise reasonable prudence (or will act in accordance with the standard of a reasonable and prudent operator (41-023) in the maintenance of the LNG ship). The maintenance obligation could include periodic drydocking and inspection. A failure of the shipowner to meet the maintenance requirement could reduce the amount of hire payable by the charterer, could result in an off-hire event and could even give the charterer a right to terminate the charter party. (vii) Duration. The charter party will define the time and place at which the shipowner will deliver the LNG ship to the charterer (ready for the start of the charter party), and the period of notice to be given prior to the charterer’s redelivery of the LNG ship to the shipowner. As for the actual duration of the charter party there is something of a compromise to be achieved between the shipowner’s desire to see the LNG ship committed to a profitable trade for as long as possible without interruption (not least in the interests of improving the prospects for the shipowner to obtain financing from third party lenders for

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Charter Party Terms, UKBC-GASLNGS 493298780 (2023)

the construction of the LNG ship against the security of the revenue stream which a long-term charter party creates) and the charterer’s desire to secure the greatest possible degree of flexibility in the hire terms for the LNG ship (including the flexibility to suspend or even terminate the charter party where commercial circumstances might no longer support the hire of the LNG ship). The customary resolution of this conflict (for a time charter rather than a voyage charter) is to structure the charter party so that it subsists for a defined time period, which the charterer might wish to correspond to the intended duration of an SPA, subject to the negotiation of events which might allow early termination by either party (such as where the LNG ship has been off-hire for beyond a defined period of time) and the possibility of an extension to the original term by further agreement between the parties. In order to afford some flexibility to the charterer, the charter party might recite a provision whereby the charterer can, after consultation with the shipowner, lay up the LNG ship in a safe place for a defined period of time. This is not a termination of the charter party, and neither will this right relieve the charterer from the obligation to pay the hire, but this could result in a reduced rate of hire and this suspension right could be of some commercial value to the charterer. Loss of the LNG ship, whether actual or constructive loss, should lead to termination of the charter party. (viii) Trading limits. The charter party will usually allow the charterer to take the LNG ship to any port worldwide as long as that port is within the limitations imposed from time to time by the International Navigational Limits, which are essentially the safe limits imposed by marine insurers. In practical terms the relatively limited number of LNG loading and unloading ports worldwide (compared for example to the number of ports at which crude oil can be traded) means that the charter party should meet the trading limits, and a more relevant limitation is the physical compatibility of the LNG ship and any particular loading port or unloading port, which could be reflected in the charter party by a general obligation of the charterer to ensure that the LNG ship is only taken into safe ports. These issues will be of relevance to the initially intended port under an SPA and any diversion port where an SPA recites principles of destination flexibility (7-021). Ancillary to this, in the charter party the shipowner will usually warrant that the LNG ship will be compatible with certain terminals (at loading port and unloading port facilities) which are listed in the charter party. (ix) Exceptions and war risks. The charter party will contain what is called an “exceptions clause”, whereby the parties will be exempted from loss or damage caused by acts which fall within the list of events or circumstances generally regarded as being events or circumstances beyond the reasonable control of the affected party. The charter party will also address what happens where the LNG ship is requisitioned by a government or if war breaks out which affects the trade envisaged for the LNG ship (which could give a right to terminate the charter party). Negotiation of the charter party to include a more recognisable force majeure provision might be possible where the LNG ship is specifically committed to a particular LNG project but the shipowner could be reluctant to engage in such a negotiation. (x) Default. The charter party might be negotiated to contain a list of events of default (such as the insolvency of a party and a party’s material default in the performance of its obligations under the charter party), which will give rise to the right of the nondefaulting party to terminate the charter party and which, from the shipowner’s perspective, would also allow withdrawal of the LNG ship if the charterer failed to pay the hire or the freight. From the charterer’s perspective, however, the right to terminate the charter party could be a meaningless remedy where the market is such that a suitable alternative LNG ship cannot be found as a replacement, and provision for the payment of compensation to the charterer from the shipowner could be preferable. (xi) Charterer’s and shipowner’s provision. The charterer will be responsible for providing the bunkers (see below) as fuel to be used by the LNG ship and for meeting port charges and fees (except under a voyage charter, where such provision could be a responsibility of the shipowner). The shipowner will undertake to pay the wages and costs associated with the master and the crew of the LNG ship and the costs of insuring the LNG ship.

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Charter Party Terms, UKBC-GASLNGS 493298780 (2023)

(xii) Hire and payment. Hire, being the payment due for the LNG ship from the charterer to the shipowner in respect of a time charter, will be recited as an amount per day for each day of the charter party, usually payable per calendar month in advance, with an offset for certain amounts due to the charterer from the shipowner. Hire could be expressed as a single amount or it could be divided to reflect capital expenditure (capex) and operating expenditure (opex) elements. Lower hire rates could also be payable where the LNG ship has a higher boil-off rate (33-020), as a discount which reflects the vintage of the LNG ship and its relatively reduced operational efficiency. Failure of the charterer to make payment of the hire as required usually will usually entitle the shipowner to withdraw the LNG ship from service. The charter party will also recite the necessary mechanics for payment of the hire. For a long-term hire of an LNG ship the hire figure could be indexed to allow for escalation. Under a voyage charter the charterer will usually pay a single lump-sum amount of freight to the shipowner as consideration for the provision of the ship, usually payable in advance of the voyage. A shipowner could be granted a lien over the LNG cargo as security for amounts due for payment under the charter party (principally unpaid hire or freight) but this could cause problems for a seller under a DES-based sale where the seller warrants the LNG to be free from encumbrances at the point of delivery. (xiii) Bunkers and heel. Under a time charter the charterer could be responsible for the provision of all necessary voyage fuel (also called “bunkers”) and heel at its own expense. Under a voyage charter the LNG ship could be delivered to the charterer with defined volumes of bunkers and heel onboard which the charterer will pay the shipowner for, and will be redelivered at the end of the charter party with defined volumes of bunkers and heel on board, which the shipowner will pay the charterer for, in each case according to defined prices. Alternatively the shipowner could assume responsibility for provision of the bunkers and the heel, but the costs of doing so will be reflected in the freight payment and so borne ultimately by the charterer. The charter party might be further modified to reflect on-board re-liquefaction of boil-off and the use of LNG as fuel for the LNG ship. (xiv) Presentation. The charter party could describe the condition of the LNG ship’s storage tanks at the point of delivery of the LNG ship by the shipowner to the charterer (33-019). This is an issue of particular relevance under a voyage charter, where the LNG ship is delivered to the charterer at the start of the charter. (xv) Off-hire. Hire (or freight)—see above—is payable under the charter party at all times between delivery of the LNG ship to the charterer and redelivery of that LNG ship to the shipowner at the end of the charter party, although an exception to this obligation of the charterer will apply where the charterer exercises a right to take the LNG ship off-hire. Because of the potential loss of revenue to the shipowner in such a circumstance the shipowner will be keen to restrict the opportunity of the charterer to make an off-hire election; typically such an election can be made where the LNG ship is unable to perform the service for which it has been chartered, e.g. where the LNG ship fails to meet the performance conditions specified under the charter party, where the LNG ship has broken down or has been involved in any accident or incident (either of which could fall within the exceptions clause), where the crew has failed to perform its duties or where the LNG ship is due to undergo maintenance. (xvi) Laytime and demurrage. Of particular application to the transportation of LNG under a voyage charter, the charter party could specify the required period of laytime and the rate of demurrage (33-012) payable by the charterer to the shipowner in the event the charterer detains the LNG ship without good reason. (xvii) Subletting. A charter party might give the charterer the right to sub-let the LNG ship, provided that the charterer remains fully responsible to the shipowner for the primary performance of the charter party.

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Charter Party Terms, UKBC-GASLNGS 493298780 (2023)

(xviii) Transshipment. The charter party could address the ability of the charterer to require an offshore ship-to-ship (STS) transfer of the LNG cargo. This could be limited to transshipments solely for reasons connected with preservation of the LNG ship or the LNG cargo or could be extended to include commercially-required transshipments. Any transshipments will be required to be undertaken in accordance with prescribed operational guidelines. (xix) Protective clauses. The charter party will usually contain a number of protective clauses, including both to blame collision (a circular indemnity regime which allocates losses arising from a collision), general average (provision for compensation of the shipowner for loss arising from an act intended to preserve the LNG ship), New Jason (provision for certain recoveries by the shipowner from the charterer) and general paramount (the implication of certain convention principles relating to bills of lading). (xx) Taxation and imposts. The charter party could say how taxes and imposts which are applied in respect of the LNG ship are to be borne between the shipowner and the charterer (see for example the suggested incidence of the European Union Emission Trading System (EU ETS) costs (41-027)). (xxi) Law and dispute resolution. The charter party should define the law which applies to it and should provide a forum for the resolution of disputes between the charterer and the shipowner. End of Document

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The Charter Party and the SPA, UKBC-GASLNGS 493298779 (2023)

The Charter Party and the SPA Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 34 - Charter Party Agreements The Charter Party and the SPA 34-007 The buyer of LNG under an SPA will be the shipper under the charter party under an FOB-based sale, and the seller of LNG under an SPA will be the shipper under the charter party under a DES-based sale. In either case it will be necessary to ensure a proper interface between the terms of an SPA and the charter party, which will need to be addressed as part of the process of the overall structuring of an overall LNG project: (i) Duration. Where a time charter exists the charterer should ensure that at the outset the charter party is structured so as to subsist for a length of time equal to the intended duration of the relationship created by an SPA (unless alternative arrangements for LNG shipping can be made, such as through a series of charter parties sufficient to meet the charterer’s needs). Suspension or termination of an SPA will not automatically lead to equivalent suspension or termination of the charter party, however, not least since the shipowner will be unwilling to assume the risks associated with the commercial relationship under an SPA, and so the charterer will need to recognise this risk (which may, at least in part, be mitigated by the off-hire provisions in the charter party—see above). Looking at this from the perspective of an SPA, loss of the LNG ship will typically result in immediate termination of the charter party and this is an event which could be reflected back under an SPA, whether as an event of force majeure or as a termination event, unless alternative shipping arrangements can be made. The counterparty to the SPA might not be so willing to assume these risks however. (ii) Default. A default by a party under the terms of an SPA, where that defaulting party is also the charterer, could be attributable to a failure of the transportation arrangements under the charter party, e.g. the seller under a DES-based sale is late or fails in delivering the LNG cargo to the unloading port or delivers a cargo of off-specification LNG, or the buyer under an FOBbased sale is late or fails in taking delivery of the LNG cargo from the loading port. In these circumstances the liability of that party for that default, where not capable of being relieved on the grounds of force majeure, might be capable of being defrayed (at least in part) to the shipowner where the default is attributable to an act or omission of the shipowner under the terms of the charter party. This could be done through a reduction in the hire or the freight payable because of a failure of the LNG ship (and/or its crew) to meet the requisite performance standards, although it should be appreciated that hire savings made by the charterer under the charter party might not equate to a full offset of that party’s liability under an SPA. There is not ordinarily a straight pass through of liability or loss between an SPA and the charter party in these instances. (iii) Force majeure. The exceptions clause in the charter party (see above) generally recites events and circumstances which are related only to loss or damage involving the LNG ship and arising from or resulting from those events, all as specified in the exceptions clause. It may be, however, that (if this can be agreed with the shipowner) the charter party is modified to incorporate wider force majeure style events which affect the overall LNG project to which the LNG ship is committed so that, for example, loss of or damage to unloading port or loading port facilities or problems impacting the performability of an SPA, any of

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The Charter Party and the SPA, UKBC-GASLNGS 493298779 (2023)

which impact the necessity for use of the LNG ship, could be claimed as force majeure under the charter party (leading to the declaration of an off-hire event, or even termination of the charter party). (iv) Maintenance. Whatever maintenance standard is adopted in the charter party, the charterer will need to ensure that the maintenance schedule for the LNG ship which causes the LNG ship to be taken out of trade for any period of time is reflected in an SPA as relief from that party’s obligations thereunder (unless a replacement LNG ship is provided). There could also be the possibility to correspond maintenance periods between an SPA and the charter party. (v) Shipowner security. The shipowner’s lien over the charterer’s LNG cargo as security for amounts due and unpaid under the charter party (see above) will need to be reconciled with any warranties given by the seller in an SPA regarding freedom of the LNG cargo from encumbrances at the point of delivery to the buyer. (vi) Off-specification LNG liability. Under a DES-based sale the seller could argue that a cargo of LNG which is delivered to the unloading port and which is found to be off-specification is attributable to the carriage of that LNG in the LNG ship. The buyer under an SPA would not be interested in the forensics of this argument and so the seller would have to make a claim against the shipowner, related to the performance characteristics of the LNG ship under the charter party. (vii) Diversions. An SPA could contain rights for the seller and/or the buyer to require the diversion of the LNG ship to an unloading port other than that which was principally envisaged by an SPA (7-021). The ability of such a diversion to be effected could be constrained by issues such as the trading limits and a general issue of the compatibility of the LNG ship and the intended port (see above). (viii) LNG ship damage. An SPA could present a mutual hold harmless liability allocation model (36-002) between the parties, where the transporting party assumes responsibility for loss of or damage to the LNG ship as part of its facilities. This regime will need to be reconciled with any corresponding provisions in the charter party. End of Document

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Other Charter Party Uses, UKBC-GASLNGS 493298783 (2023)

Other Charter Party Uses Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part D - LNG Sales and Transportation Chapter 34 - Charter Party Agreements Other Charter Party Uses 34-008 A modified form of LNG ship could be used as a vessel for the offshore regasification of inbound LNG (and called a “floating storage and regasification unit” (FSRU)) or for the offshore liquefaction of outbound LNG (and called a “floating LNG” (FLNG) unit). Where a ship is hired from a shipowner for long-term use as an FSRU unit or as an FLNG unit a number of particular characteristics will need to be reflected in the charter party arrangement, although it is not typically described as such—in these particular operational circumstances the arrangement is a bespoke contract more commonly called a “lease and operate agreement” or as a “production services agreement”, although it will contain many of the elements of a charter party. These characteristics relate principally to the delivery, commissioning and acceptance of the ship at the start of the term, the provision of defined LNG processing services to defined standards of performance by the shipowner during the term, and dispensation with the provisions of the charter party relating to the transportation of LNG between ports by the ship (unless, in the latter case, an FSRU is designed for dual use for LNG transportation and LNG regasification). End of Document

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Introduction, UKBC-GASLNGS 493298791 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Introduction 35-001 The doctrine of force majeure is a creature of contractual innovation, the precise extent of which will be agreed between the parties in the terms of a sales contract. It is well known that force majeure is not a term of art in English law 1 and a sales contract will need to define carefully the parameters of the force majeure relief which is intended to be available to the parties if a force majeure provision is to be truly effective.

Footnotes 1

Hackney BC v Doré [1922] 1 K.B. 431 KBD. In Thomas Borthwick (Glasgow) Ltd v Faure Fairclough Ltd [1968] 1 Lloyd’s Rep.16 QBD (Comm) Donaldson J remarked that: “… the precise meaning of this term, if it has one, has eluded lawyers for years.”

End of Document

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The Force Majeure Logic, UKBC-GASLNGS 493298792 (2023)

The Force Majeure Logic Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure The Force Majeure Logic 35-002 Force majeure imports the principle that, upon the occurrence of an event or circumstance which is beyond the control (sometimes expressed as the reasonable control) of a party which prevents that party from performing some or all of its contractual obligations, that party should be relieved from a contractual liability which might otherwise arise consequent upon a failure of that party to perform those affected obligations. Force majeure essentially recognises that an expectation of absolute contractual performance by and between contracting parties is an unrealistic proposition. Some force majeure formulations (including, for example, the ICC formulation (35-017) and the AIEN GSA (6-002)) also apply a proviso that force majeure relief will not be forthcoming for an event which should have been foreseeable (sometimes described as reasonably foreseeable) by the affected party, to be determined at the time of entry into the relevant contract rather than at the time of making a claim. 2 The foreseeability element applies an additional layer of forensic complexity to what could be an already complicated claim for relief. Force majeure affords relief to a party from a contractual liability which would otherwise apply in respect of a failure to perform a contractual obligation; it should not suspend the requirement for performance of the obligation itself, and in many force majeure formulations the requirement of the affected party to continue to perform its contractual obligations to the greatest possible extent is expressly stated, and rightly so. By the same token therefore an obligation to which no liability for a failure to perform would attach (however unlikely that might seem—but see below) would not obviously require the benefit of force majeure relief. That said, the commercial instinct of an affected party in such a circumstance would still be to seek force majeure relief. 35-003 It may be that a sales contract imposes an absolute obligation on a party, in respect of which the liability for a failure to perform that obligation is expressed not to be capable of being relieved by force majeure (such as, for example, in the case of a requirements contract (11-009) or a warranty and representation (41-030)). In respect of such an obligation (often called an “all events” or a “hell or high water” provision) the only remedy of the affected party would be recourse to the doctrine of frustration, if it applies (see below), or possibly to right of termination in respect of the affected contract (39-005). The theme which is common to every event which is potentially the subject of a claim for force majeure relief is that the event must be genuinely beyond the control of the affected party, and that the event must have the capacity to prevent, impede or delay the affected party from performing the obligation in respect of which force majeure relief is claimed. Once that is established, force majeure relief should apply to an affected obligation only to the extent that the affected party is unable to perform that obligation, rather than automatically to the entirety of the affected obligation. Consequently a careful examination of an event or circumstance giving rise to a claim for force majeure relief will be necessary in order to assess the extent to which an originallyintended method of contractual performance has been prevented, impeded or delayed.

Footnotes

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The Force Majeure Logic, UKBC-GASLNGS 493298792 (2023)

2

The issue of foreseeability assumes a particular relevance in the context of events such as a pandemic. See P. Roberts, “Interface of COVID-19, price collapse and force majeure in gas and LNG sales contracts” (2020) Thomson Reuters Practical Law.

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Force Majeure Relief, UKBC-GASLNGS 493298785 (2023)

Force Majeure Relief Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Force Majeure Relief 35-004 Since the primary obligation of a seller under a sales contract is to deliver quantities of gas which meet the buyer’s requirements and which meet the requisite gas quality specification, the seller’s principal interest is in securing the availability of force majeure relief for liabilities under the sales contract for a seller’s delivery failure (19-002, 32-034) or for the delivery of offspecification gas (21-008, 32-042). The seller will ideally require that this relief applies in consequence of any failure of the seller and also in consequence of the failure of any third party which the seller has relied upon for assistance in the performance of its obligations, such as a failure by the transporter under a GTA or by the shipowner under a charter party. The position of the buyer under a take and pay commitment (16-003) represents a performance obligation to which force majeure relief would apply (at least, in relation to the take part of the commitment—the pay part of the commitment is considered further below). The position of the buyer under a take or pay commitment (16-004) is not so clear. Because under such a commitment the buyer is not obliged to take delivery of gas but rather has the option not to take gas and to pay for it, then there is no obligation on the buyer to take delivery of gas and so, strictly, no liability for a failure to do so in respect of which force majeure relief would apply where the buyer is unable to take delivery of gas. The buyer does have a payment obligation but the buyer will not be relieved in respect of that obligation since a failure to make payment when due is typically an express exclusion from the application of force majeure relief (see below). Logic would suggest, however, that if the buyer is unable to take delivery of gas because of an event beyond its control then this is a circumstance in which some measure of relief ought properly to apply in favour of the buyer in respect of its take or pay commitment. 35-005 Such relief will usually be forthcoming through an adjustment to the ACQ for any quantities of gas which the buyer is unable to take delivery of at the delivery point because of an event of force majeure affecting the buyer and by this route the buyer will effectively secure a corresponding reduction in its take or pay commitment. Consequently, and perhaps counter-intuitively, in the event that the buyer is unable to take delivery of gas the buyer should still seek force majeure relief in respect of an obligation and a liability for failure which it does not have, in order to establish the basis for the ACQ adjustment. A buyer might also require the availability of relief from its take and pay or take or pay commitments to be extended to apply to any end-users to whom the buyer may be reselling gas where the buyer is acting as an aggregator (6-010), so that any event which impacts their ability to take delivery of gas will give reciprocal relief to the buyer. A seller could be unwilling, however, to accept unlimited downstream risk and could in the sales contract seek to control the circumstances by which such relief may be afforded to the buyer, possibly through the definition of a limited class of persons who would qualify as an end-user and to whom relief to the buyer might be afforded. 3 This could be done by either limiting relief to individually identified major customers or (in respect of an aggregation of smaller customers) by providing that relief will only be available to a buyer where the aggregate failure of the end-users reaches a specified threshold for the quantity of gas to be delivered by the buyer to the end-users. 35-006 Where an event of force majeure is claimed by a seller as an affected party under a sales contract and such an event might also impact other buyers from the seller then a buyer might require that the extent of the force majeure event is allocated rateably by the seller between all of the buyers, such that the burden does not fall entirely on one particular buyer. The obverse would apply in respect of an event of force majeure claimed by a buyer which is buying gas from a number of different sellers. The acceptance

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of such a regime could also require provision under the sales contract for the reclassification of less than rateable allocations and/or the audit of such allocations by the affected party in the same manner that might be applied to a seller’s delivery failure. In respect of the availability of force majeure relief to a party for a party’s inability to perform its obligations, care must be taken to analyse the exact obligation for which that relief is being sought. After all, the occurrence of an event or circumstance which, whilst inconveniencing a party, does not actually prevent that party from performing its obligations would not ostensibly qualify for force majeure relief. Thus, where there is an obligation of a seller to deliver (or a buyer to take delivery of) a defined quantity of gas over say a year then a failure in respect of any shorter period of time where that seller is unable to deliver (or that buyer is unable to take delivery of) gas in respect of that period would not obviously qualify for force majeure relief, because of the annualised nature of the obligation. That said, in practical terms an affected party would still make a protective claim for force majeure relief so that a failure in respect of a particular period of time could be taken into account in later defining the permissible extent of force majeure relief.

Footnotes 3

See P-28.

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Events of Force Majeure, UKBC-GASLNGS 493298788 (2023)

Events of Force Majeure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Events of Force Majeure 35-007 A sales contract will usually identify a series of events or circumstances which can legitimately be claimed by a party as force majeure. Items which the parties typically have in mind when drafting force majeure provisions are occurrences such as fire, flood and acts of god or other natural catastrophes, although the concept of force majeure is often wider than events attributable solely to natural causes without human intervention and the list of events will typically also include man-made interventions such as war, strikes or legislative interference. Force majeure relief is often conceived of as applying only to operational or technical problems which affect a party. The reality, however, is that force majeure relief could equally be claimed in respect of changes of law, economic hardship or general administrative inconvenience, unless these items are excluded (whether by general drafting or by specific identification—see below) from being claimable as force majeure. A sales contract might define an exhaustive and exclusive list of events or circumstances in respect of which force majeure relief can be claimed, but out of concern that a reasonable event might be overlooked in preparing that list the more common formulation is that the sales contract will recite several events for the purposes of illustration only as part of a non-exhaustive list, with a catch-all provision that force majeure relief will also be available in respect of any other event unless that event is specifically named in a list of excluded items (see below). Under English law, where there is a specific list of illustrative events accompanied by general wording about events beyond a party’s control the general words are typically construed as having their natural and larger meaning and will not be construed ejusdem generis with the specific list. 4 35-008 A sales contract might also be drafted such that one party can claim force majeure relief in respect of the performance of its obligations where the other party has successfully claimed force majeure relief in respect of the performance of its obligations, essentially as a protective measure. This would, for example, relieve the seller under a sales contract from the obligation to deliver gas at the delivery point where the buyer under the same sales contract has claimed force majeure relief because of an event affecting the physical operability of the gas reception facilities at the delivery point. It may be preferable not to include such a formulation, however, on the grounds that an automatic application of such a reciprocal force majeure right is unreasonably restrictive of the general obligation of a party to continue to perform its contractual obligations (see above). Rather, a nonaffected party should be obliged to continue to perform its obligations but without prejudice to the right of that party to claim force majeure relief specifically in respect of those obligations when properly necessary.

Footnotes 4

Chandris v Isbrandtsen Moller Co Inc [1951] 1 K.B. 240; [1950] 2 All E.R. 618 CA (but for a contrasting view, see Sonat Offshore SA v Amerada Hess Development and Texaco (Britain) [1988] 1 Lloyd’s Rep. 145; 39 B.L.R. 1 CA (Civ Div)).

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Excluded Items, UKBC-GASLNGS 493298793 (2023)

Excluded Items Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Excluded Items 35-009 Particularly where a sales contract adopts a non-exhaustive list of force majeure events (see above), a sales contract will usually also recite a detailed list of events or circumstances in respect of which the parties will be expressly unable to claim force majeure relief. The list of excluded items will typically include the following: (i) Events within the control of the affected party. An event which was within an affected party’s ability to prevent from taking place or to curtail will typically be construed as not being open to force majeure relief in favour of the affected party, and in effect this could include events caused by the affected party’s own negligence or wilful misconduct. To protect the affected party from being subject to an absolute obligation to prevent or curtail such an event as a condition of accessing force majeure relief, however, a sales contract usually obliges the affected party to use reasonable endeavours (41-020) or to act only to the defined standard of a reasonable and prudent operator (41-023)—where a force majeure event which could only be prevented or curtailed by the affected party by efforts beyond the named standard should still be open to force majeure relief. (ii) Market changes and uneconomic performance. Changes in market conditions or other economic events which render a party’s performance more difficult or less profitable typically will not afford force majeure relief 5 (although this situation might be separately governed by a hardship provision (14-004), a material adverse change provision (see below) or a right of a party to terminate the sales contract if it is no longer economic to perform (39-005)). This would apply for example to the seller where the sale of gas under the sales contract is economically less attractive than alternative sales opportunities and to the buyer if there is a reduced demand for gas. (iii) Payment failure. A failure to make payment when payment is due typically will not afford force majeure relief. This is intended principally to apply to the buyer under a sales contract, and this exclusion is sometimes refined to make it clear that the exclusion applies only in respect of a lack of available funds and does not extend to a total inability to make payment when all available methods of payment are incapable of being utilised. 6 (iv) Reservoir failure. Whether in the case of the seller under a sales contract the exclusion of a failure of the underlying gas reservoir applies as a ground for force majeure relief will primarily be determined by whether the parties perceive the sales contract to be a depletion-based contract or a supply-based contract (6-005). If force majeure relief is available for reservoir failure then it might be limited to apply only to physical loss of or damage to the reservoir and will not apply to the depletion of gas reserves through production and overselling, and it might also be limited to events which the seller was genuinely unaware of when the sales contract was entered into. (v) Facilities.

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Excluded Items, UKBC-GASLNGS 493298793 (2023)

A seller will seek to secure force majeure relief under a sales contract for all of its upstream gas production (and any transportation) or reception facilities. Correspondingly, the buyer under a sales contract will seek to secure relief for all facilities at and downstream of the delivery point and possibly also for the facilities of end-users who may be buying gas from the buyer and whose gas demand in turn conditions the demand of the buyer for gas. The buyer might be reluctant to grant wide force majeure relief rights to all of the seller’s gas production and transportation facilities in a supply-based contract, and the seller might be equally reluctant in respect of a widely-defined set of downstream facilities and end-users. Force majeure relief could also be excluded for the failure of facilities which is caused by normal wear and tear. Because of a concern about extended force majeure relief to unlimited numbers of facilities the parties will usually settle on a defined list of facilities (upstream and downstream) to which force majeure relief will apply and any facilities outside of this list will not be open to force majeure relief. As the parties extend or modify their facilities during the lifetime of the sales contract this list could be added to or subtracted from, usually with the agreement of both parties. (vi) Change of applicable law. Ordinarily a party would require the availability of force majeure relief where a change of applicable law, regulation or policy prevents that party from performing its obligations under a sales contract but a balance needs to be struck between protecting a party’s interests and exposing the sales contract to the risk of being improperly undermined. Where a party to a sales contract is a state agency or is a government-linked entity and could directly or indirectly prompt a change of applicable law in its country of origin then that party could in theory do so and thereby render the sales contract unperformable. That party could have an economic incentive for such an action, such as the desire to get out of the sales contract in favour of securing more advantageous arrangements elsewhere. A sales contract could therefore contain a general right of a party to claim force majeure relief in respect of any change of applicable law which affects the ability of that party to perform its obligations under the sales contract, but with a specific exclusion in respect of the right of a party to claim relief for a change of applicable law emanating from the affected party’s country of origin and which has the object or the effect of specifically affecting that party’s interests under the sales contract. (vii) Third parties. A party might not be able to claim force majeure relief in respect of a failure of that party to perform its obligations which is caused by any act or omission of a third party, except where that third party has specifically been recognised by the sales contract. In terms of recognised third parties a seller could, for example, require relief for the failure of any transporter of gas or shipowner for the carriage of LNG to the delivery point under the GTA or the charter party respectively, and a buyer could require relief for the failure of any end-users to whom the buyer is reselling the gas which it is purchasing under the sales contract. A sales contract could also specify that an event affecting such a nominated third party can only be claimed as force majeure by a party under the sales contract if that event would in its own right constitute force majeure under the terms of the sales contract. This imposes some minimum standards to a claim for force majeure relief but it also potentially reduces the width of force majeure relief which would otherwise be available to a party. (viii) Associated liquids production. In the case of a seller the sales contract may provide that any interruption to the delivery of gas which is caused by a corresponding interruption of associated liquids production (1-004) will not entitle the seller to force majeure relief (because, says the buyer, the gas component of the overall project needs to be considered separately). Alternatively, force majeure relief could be forthcoming if the event affecting the associated liquids production would also constitute force majeure under the terms of the sales contract. Where the buyer under the sales contract is also the buyer of any associated liquids production from the seller then it might be fairer that the seller can claim force majeure relief in such circumstances, as part of a wider claim for relief which reflects the reality of the entire gas and liquids production project. (ix) Imposition of sanctions or the failure of consents. At the outset of a sales contract the parties would have contracted with each other on the basis that neither of them were the subject of prevailing national, regional or international sanctions which would prevent the full performance of the sales contract. During the lifetime of the sales contract things could change, however. Where one of the parties subsequently

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Excluded Items, UKBC-GASLNGS 493298793 (2023)

becomes the subject of such sanctions the sales contract could become impossible of performance by that party, or by the other party. This could qualify for force majeure relief but on the other hand a sales contract will usually provide that a party cannot claim force majeure relief in respect of sanctions imposed upon that party by a governmental authority for a failure of that party to comply with applicable law or regulation or for the failure of a party to obtain or maintain any necessary consents or approvals. (x) Warranties and representations. In some sales contracts a party may expressly be denied the ability to claim force majeure relief for liability for breach of a warranty or representation which is given where a warranty or representation given is or becomes untrue or inaccurate. This exclusion is suggested on the basis that the better option is that the warrantor must satisfy itself as to the complete veracity of the warranty or representation prior to giving it and thus will have an absolute liability for any breach of warranty or representation.

Footnotes 5

6

Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm); [2006] 1 Lloyd’s Rep. 441, and see also Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm); [2010] 2 Lloyd’s Rep. 668: “It is well established under English law that a change in economic/market circumstances, affecting the profitability of a contract or the ease with which the parties’ obligations can be performed is not regarded as being a force majeure event.” Some suggestion has also been made that even the absolute obligation to make payment could be qualified where payment could be precluded by the need to comply with economic sanctions. See A. B. Derman, A. Melsheimer, T. J. Auner and S. K. Sikes, “The Compliance Dilemma: Economic Sanctions and the AIPN Model Form International Joint Operating Agreement” (2019) 12 The Journal of World Energy Law & Business 4 (available at https://www.aien.org).

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Administering Force Majeure, UKBC-GASLNGS 493298786 (2023)

Administering Force Majeure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Administering Force Majeure 35-010 A sales contract should provide an administrative framework to govern the obligations of the parties during a period when force majeure relief is being claimed, and to ensure that force majeure relief once obtained is properly managed. This framework could, for example, recite the following requirements: (i) Notification. An affected party must notify the other party of the occurrence of an alleged event of force majeure within an early timeframe, providing full details of the event and of the steps which are being taken and which will be taken to overcome it, and must continue to notify the other party of the continuance of the event of force majeure. (ii) Remediation. An affected party is, as a condition of securing force majeure relief, typically required to take steps to curtail the event of force majeure, acting usually to the standard of a reasonable and prudent operator. This will usually mean that a party will not be obliged to incur extraordinary expenses or to take unreasonable steps in order to curtail the force majeure event, and in particular that a seller will not be obliged to explore for or produce any new reserves of gas. A sales contract might go on to define what it is reasonable (and not reasonable) for a party to be expected to do, rather than simply rely on the formulation of the standard of a reasonable and prudent operator. It should also be remembered that whilst a force majeure event could preclude an originally-intended method of contractual performance, an alternative method of performance could still lead to satisfaction of the affected obligation. 7 In relation to addressing the consequences of a pandemic, a sales contract could import provisions relating specifically to business continuity and disaster recovery, intended to address the consequences of a disruption which is claimed as a force majeure event. The failure of an affected party to comply with such provisions would more readily disqualify a claim for force majeure relief than would the imputation of foreseeability (see above). (iii) Burden of proof. An affected party usually has the burden of proving the validity of the claim for force majeure relief, which could require proof by the affected party that its non-performance of the obligation in question was beyond its reasonable control. This can be a difficult burden to discharge as force majeure provisions are usually very narrowly construed and real evidence can be difficult to source. (iv) Access to facilities. A sales contract might afford the parties rights of access to and inspection of each other’s facilities in order to assess any claimed events of force majeure where those facilities are affected (23-005). Compliance with the administrative regime for force majeure could be determinative of the availability of force majeure relief. 8 It will usually also be a condition of maintaining a successful claim for force majeure relief that the affected party will comply (and will continue to comply) with the requirements of this administrative regime. 9

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A sales contract might also qualify the availability of force majeure relief through the introduction of a force majeure tolerance, whereby an event which prevents a party from performing its obligations will not qualify for force majeure relief where the quantity of gas which cannot be delivered (in the case of the seller) or which cannot be taken delivery of (in the case of the buyer) is within the force majeure tolerance. 35-011

A sales contract might also provide for what is called a “force majeure restoration quantity” (FMRQ), wherein the seller will (typically) use its reasonable endeavours to deliver, and the buyer will use its reasonable endeavours to take delivery of, those quantities of gas which were not delivered or taken delivery of because of an event of force majeure affecting either of the parties. FMRQ may be harder to accommodate in a pipeline gas delivery where there may simply be insufficient ullage in the pipeline to accommodate the carriage of such extra quantities of gas. In contrast, in an SPA it might be easier to schedule another LNG ship so as to transport the FMRQ. How any FMRQs are ranked for the purposes of an attributed order of LNG deliveries will also need to be addressed in the SPA (32-019).

Footnotes 7 8 9

In MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406 a majority of the Court of Appeal found that a party which had declared force majeure should have accepted payment in Euros rather than US Dollars (which the contract called for) since doing so would have overcome the impact of the force majeure event, with no detriment to the affected party. Scottish Power UK plc v BP Exploration Operating Co Ltd [2015] EWHC 2658 (Comm); [2016] 1 All E.R. (Comm) 536. With some sense of what is reasonable and appropriate – SHV Gas Supply & Trading SAS v Naftomar Shipping & Trading Co Ltd Inc (The Azur Gas) [2005] EWHC 2528 (Comm); [2006] 2 All E.R. (Comm) 515.

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Disputed and Reclassified Force Majeure Claims, UKBC-GASLNGS 493298794 (2023)

Disputed and Reclassified Force Majeure Claims Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Disputed and Reclassified Force Majeure Claims 35-012 There is always the possibility that the validity of a claim for force majeure relief by one party will be disputed by the other party and consequently a sales contract should provide a mechanism for determining such disputes. Given that an early decision as to the validity of the claim is in the interests of both parties, recourse to an independent expert (40-004) is often the preferred method of dispute resolution. The eventual determination of the expert as to the validity, or invalidity as the case may be, of the claim for force majeure relief will have retrospective application to the parties’ interests under a sales contract, which may entail the reclassification of certain gas quantities. The sales contract might provide for the reclassification of any quantities of gas which are subsequently determined to be or not to be the subject of a force majeure event, but any such reclassification mechanism is more likely to set out generic principles than a prescriptive regime for such reclassifications. End of Document

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Consequences of Force Majeure, UKBC-GASLNGS 493298790 (2023)

Consequences of Force Majeure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Consequences of Force Majeure 35-013 The ostensible outcome of a claim for force majeure relief is that a party able to secure that relief in respect of a liability for a failure to perform an obligation under a sales contract will be relieved from such liability. A sales contract might provide that where an event of force majeure prevents a buyer from taking delivery of gas then the seller is free (for the estimated duration of the buyer’s force majeure event) to sell elsewhere the gas which would otherwise be due for delivery to the buyer. It is not necessary to provide that the quantities of gas which are sold elsewhere will count towards satisfaction of the buyer’s take or pay commitment since there will already be an adjustment to the ACQ in the buyer’s favour for gas which the buyer cannot take delivery of for reasons of force majeure in a take or pay commitment (16-004). In a take and pay commitment such third party sales could be applied in mitigation to reduce the buyer’s commitment or might not do so, depending on how the sales contract is structured. Correspondingly, where a seller is unable to deliver gas for reasons of force majeure affecting the seller then the buyer may be free to buy gas from elsewhere if it is able to do so. The quantities of gas which are bought elsewhere by the buyer will usually not reduce the contract quantity which is due for delivery by the seller (12-003), unless the buyer wishes to argue in favour of this. There will already be an adjustment to the ACQ for the gas which the seller cannot deliver for reasons of force majeure in a take or pay commitment. This extra-contractual sale and purchase mechanism gives comfort to the seller that it should be able to continue to secure at least some revenue from the sale of gas to third parties during force majeure affecting the buyer, and gives comfort to the buyer that it may be able to access deliveries of gas from third parties during force majeure affecting the seller. A sale of gas by the seller to a third party in these circumstances should be expressed to be an exclusion from any exclusive gas delivery commitment in a sales contract or where reserves of gas have been dedicated (6-005). A purchase of gas by the buyer from a third party in these circumstances should also be expressed as a qualification to any exclusivity commitments in the sales contract (7-007). 35-014 A sales contract could recognise the reality that where there has been a prolonged event of force majeure then such an event could be of such magnitude that it is unlikely that the affected party will ever be able to resume the full and proper performance of its obligations, or will only be able to resume performance after what might be regarded as an unacceptably long delay. In these circumstances it could be preferable for the parties to be free of the sales contract and to seek alternative arrangements for the sale and purchase of gas. Therefore it could be open for either party (or only for the unaffected party) to terminate the sales contract where the event of force majeure complained of has subsisted for a prolonged and uninterrupted period and/or where a certain threshold quantity of gas has not been delivered or taken delivery of over that period. This latter test is suggested in the interests of imposing at least some degree of materiality (and definition of what prolonged will mean) in respect of the force majeure event or circumstance which is complained of. Whether the right to terminate the sales contract for a prolonged force majeure event should apply to the affected party or only to the non-affected party will be a matter for negotiation in the sales contract. End of Document

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Force Majeure and Frustration, UKBC-GASLNGS 493298789 (2023)

Force Majeure and Frustration Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Force Majeure and Frustration 35-015 The English law doctrine of frustration provides that where, subsequent to the execution of a contract, the emergence of supervening circumstances beyond the control of the parties renders further performance of the contract impossible (and not merely more difficult or expensive) then the contract will be terminated and the parties will automatically be discharged from the requirement for further performance. 10 This doctrine evolved to mitigate the severity of the common law’s requirement for strict compliance with absolute contractual promises. The availability of relief to a party on the grounds of frustration will depend upon the facts in question but will be subject to a conclusion in law as established by a competent court. The consequences of a finding of frustration are somewhat drastic since the affected contract is immediately and automatically terminated, irrespective of the wishes of the parties. Where a contract is terminated by frustration the adjustment of the contractual rights of the parties will in most cases be carried out in compliance with the provisions of the Law Reform (Frustrated Contracts) Act 1943. The 1943 Act provides that where a contract which would otherwise be frustrated contains provisions intended to have effect in the event of commercial frustration then the court must give effect to those provisions in preference to the application of the Act. This principle is consistent with the basis of the relationship between force majeure and frustration. Where the parties to a contract have expressly agreed a force majeure provision in order to deal with supervening events the usual consequence is that the doctrine of frustration will by implication be precluded from application if the force majeure provisions are sufficiently clear and comprehensive and can be applied. Thus, specific treatment in the contract of an event that may otherwise have supported a claim for frustration could prevent a party from making a successful claim for frustration in respect of that same event. By the same token therefore the absence of an express force majeure provision, or the existence of a less than comprehensive provision, may leave more scope for reliance on the doctrine of frustration. 35-016 The principal advantage of including an express force majeure provision in a sales contract is that the parties are able to modify the impact of the doctrine of frustration, even to the point of its virtual exclusion. The question of whether the mere presence of a force majeure clause in a contract will be sufficient to displace the doctrine of frustration (whether partially or totally) was advanced in a case in 1977, 11 on the basis that the attempts of the contracting parties to draw up a comprehensive force majeure clause in their contract must of necessity have obviated the need to rely on the application of the doctrine of frustration. However, this proposition has not generated much support. In The Super Servant Two 12 the presence of a force majeure clause in a contract did not prevent a debate between the parties about whether a claim for relief on the grounds of frustration could also be made by the affected party in respect of that contract. A problem arises in respect of a force majeure clause which is deliberately drafted to be as wide as possible regarding the events it seeks to address. A force majeure clause which, for example, applies itself simply to supervening impossibility of any kind, however caused and of whatever nature, would leave little or no room for making a residual claim for relief on the grounds of frustration. That said, the courts are likely to place a narrow construction upon express clauses which purport to exclude the application of frustration and will insist that the provision must be “full and complete” 13 before such a conclusion is reached. To reconcile the potential for overlap between the doctrines of frustration and force majeure a sales contract could provide that the rights of the parties to claim relief on the grounds of frustration are preserved to the fullest extent possible, subject only to application of the provisions of the force majeure clause. However, this may equally be regarded as a statement of the

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obvious and instead be left unsaid. Alternatively, the parties could provide in the sales contract that the force majeure provisions provide the exclusive statement of relief on the ground of supervening impossibility and that the right to appeal to the doctrine of frustration is excluded. This could be agreed as a matter of contract, but whether the parties would really wish to do so and deprive themselves of a potentially helpful remedy is a different issue. A residual recourse to the doctrine of frustration may be helpful as a last resort, where a force majeure provision is not operative on its terms to relieve an affected party.

Footnotes 10

11 12 13

Davis Contractors v Fareham Urban DC [1956] A.C. 696; [1956] 3 W.L.R. 37. This test for frustration, based on the evolution of extraneous circumstances which render the original contract incapable of its originally intended manner of performance, was reiterated with approval in National Carriers Ltd v Panalpina (Northern) Ltd [1981] A.C. 675; [1981] 2 W.L.R. 45: “Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.” Bremer Handels GmbH v Vanden-Avenne Izegem PVBA [1978] 2 Lloyd’s Rep. 109 HL. J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep. 1 CA (Civ Div). Bank Line Ltd v Arthur Capel & Co [1919] A.C. 435 HL, per Lord Sumner.

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Codified Force Majeure, UKBC-GASLNGS 493298787 (2023)

Codified Force Majeure Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Codified Force Majeure 35-017 Notwithstanding the point made above that force majeure provisions are typically prepared on a contract-specific basis, a model form force majeure clause, intended for use in international supply contracts, has been offered for consideration by the International Chamber of Commerce (ICC). 14 This clause, which was envisaged by the ICC as capable of being applied in commercial contracts simply by incorporating a reference to it, adopts the combination of a generic force majeure event description and a list of suggested events which, if triggered, would give rise to a presumption of force majeure. Provisions of particular note in the ICC force majeure clause are the importation of the requirement for a lack of foreseeability (at the time of contracting) in respect of the alleged force majeure event and provision that the affected contract can be terminated by either party if the duration of the force majeure event has the effect of substantially depriving a contracting party of its reasonable expectation under the contract (together with an obligation of the parties to make compensatory payments in respect of derived benefits under the contract). The ICC force majeure clause introduces some potentially complicated concepts but it also lacks the detail which is invariably found in force majeure clauses in sophisticated commercial contracts. Perhaps for these reasons it is rarely encountered in practice in gas sales and transportation contracts. A revised version of this clause, issued in March 2020, 15 retained the existing deficiencies and introduced a new and difficult provision whereby the recipient of a force majeure notice would be entitled to suspend the performance of its own contractual obligations. The stated purpose of the 2020 reissue of the ICC force majeure clause is “to help businesses large and small draft contracts adaptable to unforeseen events such as the COVID-19 outbreak”, but whether this outcome is achieved is questionable.

Footnotes 14 15

ICC Force Majeure Clause 2003 (ICC Publication No 650). Available at https://www.trans-lex.org/700700/_/icc-forcemajeure-clause-2003-icc-hardship-clause-2003-icc-publication-no-650/. Available at: https://iccwbo.org/.

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Material Adverse Change, UKBC-GASLNGS 493298795 (2023)

Material Adverse Change Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 35 - Force Majeure Material Adverse Change 35-018 Over the lifetime of the relationship which is created by a sales contract there may be changes in the underlying legal or fiscal regime (such as changes in the taxation basis, the introduction of onerous new standards or, in the worst extreme, the risk of expropriation of interests) or wider economic changes which expose a party to commercial conditions which, if they had existed at the date of execution of the sales contract, could have caused that party not to have proceeded with the sales contract or which could at least have caused that party to have addressed certain elements of the sales contract in a different manner. Such a situation might be addressed by the force majeure provisions, except that such provisions might specifically exclude relief in respect of the situation complained of (e.g. force majeure relief is typically denied where the performance of a sales contract becomes uneconomic for a party—see above). Alternatively therefore a sales contract might provide that a party which has suffered a disadvantage in consequence of such changes will be afforded some protection, through what is popularly called a “material adverse change” (MAC) provision. Provisions in a sales contract for limiting contract price volatility (13-012) and allowing economic termination (39-005) are effectively an attempt to predict and address what could otherwise be such a material adverse change. A sales contract might also prescribe some form of stabilisation provision, to the effect that in the event of a material adverse change both parties will in good faith endeavour to negotiate and agree such changes in their commercial relationship which may be necessary to restore the affected party to the position which it occupied prior to the material adverse change, assuming that the effect of the material adverse change can be quantified and overcome in this manner. This is effectively an agreement to agree and so potentially unenforceable, depending on how it is structured but it may afford some comfort to the parties. It may also be that the affected party has a right to terminate the sales contract (39-005) if adequate comfort is not forthcoming. A refinement on this formulation is the provision in the sales contract that an independent expert (40-004) could be appointed to determine the necessary changes. This route has the advantage of ensuring that at least changes will be imposed rather than being left to the vagaries of further agreement between the parties. 35-019 Another formulation which seeks to address the consequences of a material adverse change is a provision that the affected party will be compensated by the unaffected party either to the level of disadvantage suffered by the affected party (to the extent that the disadvantage suffered can be quantified) or by reference to a pre-agreed amount of compensation, or at least by reference to a formula for its calculation. This compensation mechanism more typically applies in favour of foreign investors, where their counterparty to the sales contract is a government-linked entity in the host country. It may be that a sales contract is silent on how to deal with material adverse changes, in which case the affected party will be accepting the risk of a material adverse change. That said, in practice a party might simply refuse to perform its contractual obligations or might resort to litigation to test a point and a renegotiation of the sales contract might thereby be forced. Most sales contract which have been the subject of litigation have found their way into court when the price payable for gas is different to the price at which gas might otherwise be bought and sold. In consequence of this pricing disparity the aggrieved party would look carefully at all the terms of the sales contract and the wider gas project in order to find a way out, on any grounds. The courts, however, have generally proved to be alert to this tactic. 16

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Footnotes 16

In Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep. 209; [1998] C.L.C. 1275 HL Lord Hope identified the essence of the issue: “It is no secret that the reason why the buyer wishes to terminate the Agreement is that the market has now turned in its favour … the court should be slow to lend its assistance. Commercial contracts should so far as possible be upheld.”

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Introduction, UKBC-GASLNGS 493298796 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Introduction 36-001 Under a sales contract the liability of the seller for a failure to deliver gas, or for the delivery of gas which fails to meet the prescribed quality specification, is covered by the seller’s delivery failure and the off-specification gas regimes respectively. The buyer’s liability for an undertake or an overtake of gas (where gas is delivered by pipeline) and the liability of a party for a failure to make payment when due is covered by the undertake gas, overtake gas and the invoicing and payment provisions respectively. A sales contract might additionally provide a regime for allocating liabilities for loss or damage suffered by a party in respect of its own property and personnel interests and in respect of claims made by third parties arising from the activities contemplated by the sales contract. A sales contract will usually also impose a series of liability limitations between the parties. This chapter discusses those liability allocation regimes and liability limitations. End of Document

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Loss or Damage Incurred by a Party, UKBC-GASLNGS 493298798 (2023)

Loss or Damage Incurred by a Party Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Loss or Damage Incurred by a Party 36-002 A sales contract might be silent on the issue of allocating liabilities between the parties for loss of or damage to their own property and personnel interests arising in consequence of the activities contemplated by the sales contract, and consequently liability would be allocated between the parties according to the general principles of the law which is applicable to the sales contract. Many sales contracts deliberately adopt this position. Under English law, broadly, a person causing loss or damage to another person’s interests will ordinarily be liable to that other person if liability can be established (under tort law for negligence for example, subject to issues of causation and the quantum of liability). Alternatively a sales contract might expressly prescribe a regime for the allocation of such liabilities between the parties and where this is so two models typically arise for consideration: (i) Mutual hold harmless. Otherwise called “knock-for-knock”, under this liability allocation model the buyer and the seller will each assume responsibility for their own property and personnel loss or damage, even where such loss or damage is attributable to the act or omission of the other party. Each party will also undertake to indemnify the other party against any claims made by or through the first party in respect of such loss or damage which might otherwise undermine the liability allocation model. Essentially, each party bears its own losses and liabilities, based on its ownership of the affected assets or interests and without the attribution of fault as a determinant of liability. This combination of assumed responsibility and an indemnity effectively creates a circular liability mechanism whereby the integrity of the mutual hold harmless liability allocation model is maintained, since the net loss ultimately falls upon the party which originally suffered that loss:

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Loss or Damage Incurred by a Party, UKBC-GASLNGS 493298798 (2023)

The difficulty with this circular liability mechanism is that it relies for its successful operation on the creditworthiness of all the proponents in the circle. Any breakdown in a party’s ability to make payment under such an indemnity regime will defeat the mechanism. This is an issue which might be addressed by collateral support (15-002). Care must also be taken in drafting a mutual hold harmless liability allocation model within the context of a multi-contract gas commercialisation project that the relevant drafting does not inadvertently neuter its intended effect by being too circular. 1 (ii) Guilty party pays. Under this liability allocation model a party which causes loss or damage to the other party will be obliged to indemnify that other party for such loss or damage. An obvious consequence of this fault-based liability allocation model is that the forensics of which party is at fault will invariably be debated and (except in the most obvious of circumstances) a successful claim for the allocation of liability is likely to be preceded by some dispute, which may result in the need for some form of adjudication (Ch.40). An off-specification gas liability regime, wherein the seller agrees to compensate the buyer for loss or damage caused by the acceptance of off-specification gas (21-008), is effectively an example of a guilty party pays arrangement. In deciding which liability allocation model to adopt in a sales contract an assessment by a party of whether that party is more likely to be causing or suffering loss or damage could colour that decision. In theory at least a party which causes loss or damage should be drawn towards the mutual hold harmless liability allocation model, whilst a party which suffers loss or damage would prefer the guilty party pays liability allocation model. In reality, however, it is difficult for a party to predict what could happen over the lifetime of a sales contract and which liability allocation model might be more advantageous, and so such an analysis is too simplistic. A notable examination of the use of the mutual hold harmless liability allocation model can be found in the House of Lords decision in the Caledonia North Sea case 2 (the principal case dealing with the allocation of liability following the Piper Alpha incident in 1988). In the Caledonia case the giving of mutual hold harmless indemnities was described by Lord Bingham as a “market practice” which had “developed to take account of the peculiar features of offshore operations”. 36-003 The effective operation of both liability allocation models recited above relies on the application of an indemnity. The popularly recited advantages of an indemnity under English law are that the party to be indemnified only has to prove the occurrence of the event which triggers the indemnity obligation in order to make recovery under that indemnity and will not be obliged to prove causation to any greater degree, that the party to be indemnified will not be required to prove that the loss to be indemnified against is not too remote to be recovered and that the party to be indemnified is not required to mitigate the loss which it would otherwise expect to recover under the indemnity (although this latter point is often modified expressly by agreement between the parties in the sales contract and is not an absolute proposition under English law). When drafting an indemnity the intended width of the indemnity cover should be confirmed. A popular recital in an indemnity is that it will cover losses “arising out of or in connection with the performance of the relevant contract”, rather than being wider so as to apply to an entire relationship between the contracting parties which might go beyond the relevant contract, or narrower so as to apply only to specific issues under the relevant contract. In Campbell v Conoco (UK) Ltd 3 an indemnity written along the lines of this recital was held by the Court of Appeal to be wide enough to cover all incidents arising within a particular time and place of working. Similar considerations will apply in respect of the definition of personnel (rather than distinguishing employees and contractors) and property (rather than distinguishing owned, leased or contracted property interests).

Footnotes 1 2 3

Slessor v Vetco Gray UK Ltd [2007] CSOH 59; [2007] S.L.T. 400. Caledonia North Sea Ltd v London Bridge Engineering Ltd [2002] UKHL 4; [2002] 1 All E.R. (Comm) 321. Campbell v Conoco (UK) Ltd [2002] EWCA Civ 704; [2003] 1 All E.R. (Comm) 35.

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Loss or Damage Incurred by a Third Party, UKBC-GASLNGS 493298803 (2023)

Loss or Damage Incurred by a Third Party Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Loss or Damage Incurred by a Third Party 36-004 It may be that a third party will make a claim against any or all of the parties to a sales contract in consequence of any loss or damage suffered by that third party arising from the activities carried out in relation to the sales contract. A sales contract could provide that any liability arising in respect of a claim made by a third party will be borne by the party against which that claim is made. If a claim is made by a third party against more than one party then the allocation of liability between the parties in respect of that claim will be determined by the adjudicatory forum within which the third party’s claims are brought. Effectively, such liability would be borne by the party responsible for the loss or damage suffered by the third party (which is broadly in keeping with the principle of a guilty party pays liability allocation model). As between themselves, the parties to a sales contract might agree a separate regime for contributions in respect of third party claim liabilities, such that a liability to a third party which is initially settled on the basis that the guilty party pays is then reallocated between the parties. A third party, as a person which has no contractual connection (whether directly or indirectly) with any of the arrangements contemplated by the sales contract, cannot be bound by any inter-party arrangements for the allocation of liabilities which have been agreed between the parties to the sales contract. The circular liability mechanism (see above) will be of particular application in respect of third party claims where a mutual hold harmless liability allocation model is adopted in a sales contract. Where, for example, under a GSA there is a delivery of off-specification gas by the seller (which is also the shipper under the GTA) which causes damage to the buyer’s facilities but which cannot fully be recovered for by the buyer against the seller because of the existence of a mutual hold harmless liability allocation model and/or because of any limitations on the seller’s liability for off-specification gas in the sales contract (21-008), the buyer might argue that the transporter has a tortious liability to the buyer for the transportation of that off-specification gas. Because there is no direct contractual relationship between the buyer and the transporter then the buyer will be free of any contractual limitations in a prospective claim in tort against the transporter:

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Loss or Damage Incurred by a Third Party, UKBC-GASLNGS 493298803 (2023)

To protect itself from such an exposure therefore the transporter might require an indemnity from the shipper under the GTA against such a liability. The shipper, in its capacity as the seller under the GSA, might in turn require an indemnity from the buyer against any liability which the seller (as the shipper) incurs under the indemnity to the transporter under the GTA:

By this route the buyer’s recovery against the transporter will be recovered by the transporter from the shipper and in turn by the shipper (as the seller) from the buyer, such that the buyer has no ultimate advantage to be gained from making the original claim against the transporter.

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Loss or Damage Incurred by a Third Party, UKBC-GASLNGS 493298803 (2023)

36-005 The same point of principle would apply where the buyer under the sales contract is acting as an aggregator (6-010) and is reselling the gas which is purchased under the sales contract. The seller may require an indemnity from the buyer against claims made against the seller by the end-users, and the buyer should make reciprocal such an indemnity in its resale contracts with the end-users, so that any claim made by the end-users against the seller would ultimately return to the end-users. Where a party is the defendant of proceedings which have been commenced by a third party but that party may ultimately be able to defray any resultant third party liability to another party under the terms of an indemnity then the indemnifying party which will ultimately be liable for the economic incidence of the third party claim may wish to have rights to control, or at least to have a say in, the conduct of the defence and the sales contract might make provision for this. End of Document

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Extensions of Liability, UKBC-GASLNGS 493298797 (2023)

Extensions of Liability Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Extensions of Liability 36-006 In either of the liability allocation models recited above the definition of a loss or liability suffered by a party could be extended to include certain third parties related to a party control (such as a party’s affiliates, agents and contractors and the directors, officers or employees of any of those entities), such that they also come within the protection which is afforded by the agreed liability allocation model. Under the mutual hold harmless liability allocation model an action brought by the seller’s contractor against the buyer for loss caused to that contractor by the buyer would be treated as an action brought by the seller directly, and the assumption of responsibility and circular indemnity mechanism would apply in order to visit the ultimate loss upon the seller. To this end the seller should ensure reciprocal coverage in its commercial arrangements with its contractors and other such associated third parties. Under the guilty party pays liability allocation model the ultimate liability would lie with the guilty party and this principle would apply equally in respect of claims made by such associated third parties. So, for example, an action brought by the seller’s contractor against the buyer for loss caused to that contractor by the buyer would visit the loss upon the buyer. Where the sales contract’s liability allocation model specifically recognises such third parties within the seller/buyer relationship then any limitations on liability which are created by the terms of the sales contract in favour of a party might also be extended (by various methods) to bind and to cover such third persons. The relationship between parties and their third parties, particularly where a benefit is conferred on such third parties through the extension of limitations on liability protection, should also be considered in light of the application of the Contracts (Rights of Third Parties) Act 1999 (37-005). End of Document

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Liabilities and Insurance, UKBC-GASLNGS 493298800 (2023)

Liabilities and Insurance Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Liabilities and Insurance 36-007 The application of the liability allocation model in the sales contract often goes hand in hand with the provisions in the sales contract governing the maintenance by the parties of insurance coverage in respect of loss of or damage to facilities and these components should be considered together because of their overlapping relationship: (i) Insurance recovery as a precursor to applying the liability allocation model. Where a guilty party pays liability allocation model is adopted the sales contract might provide that it will be a condition of the guilty party’s liability that the party which has suffered loss or damage and which wishes to make a recovery from the guilty party must first have exhausted any potential rights of recovery from its own insurers. This could be agreed as a matter of contract but it is not a compellable proposition under English law. In the Piper Alpha cases (see above) it became apparent that the operator had taken out insurance to cover many of the losses which were subsequently suffered by the operator and in court some contractors argued that the operator, having a right to be indemnified by its insurers, had no right to recover against them on the contractual indemnities which existed in the operator’s favour. The House of Lords (in the Caledonia case —see above) ruled that a contracting party’s ability to recover damages was not affected by the fact that the contracting party claiming the damages could also be indemnified under an insurance policy, and that the obligation under the contractual indemnities was a primary liability, in contrast to the insurer’s duty of indemnity which was a secondary liability. (ii) Insurance recovery in preference to commencing an action. The ability of a party to make a recovery under a policy of insurance in respect of loss of or damage to its facilities may help to underpin the operation of whichever liability allocation model is selected. A party may be more inclined to honour a mutual hold harmless liability allocation model and not to try and overturn such a limitation in the sales contract in favour of commencing an action for the recovery of its losses where that party could make a successful insurance recovery in respect of those losses. Furthermore, where a guilty party pays liability allocation model applies then a party which can make a successful insurance recovery in respect of the loss or damage which it has suffered could be less inclined to bring an action against the guilty party for the recovery of its losses (although such insurance cover should not preclude its ability to do so—see above). (iii) Combining a liability allocation model and insurance recoveries. Where a mutual hold harmless liability allocation model is underpinned by the commitment of each party to arrange insurance in respect of the loss of or damage to its facilities, the strict liability which is created by a mutual hold harmless liability allocation model could be modified partially by a commitment of a party to indemnify the other in respect of the deductible component of the insurance coverage (41-015) which would otherwise fall to be borne by the party suffering the loss of or damage to its facilities. So, for example, where under a sales contract an act of the seller damages the buyer’s facilities and the buyer makes a claim on its insurance in order to recover the costs of remediation, the seller could be liable to indemnify the buyer solely in respect of the deductible component of the buyer’s loss, with the mutual hold harmless liability allocation model thereafter applying.

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Liabilities and Insurance, UKBC-GASLNGS 493298800 (2023)

(iv) Insurance of indemnity protection. A party which is the recipient of an indemnity under a sales contract might seek to be named as a co-insured person (41-015) on any policy of insurance which the indemnifying party has in place, to the extent of the indemnity. End of Document

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Limitations of Liability, UKBC-GASLNGS 493298801 (2023)

Limitations of Liability Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Limitations of Liability 36-008 Notwithstanding that the parties to a sales contract may have undertaken to indemnify each other, in certain circumstances the principles of the law applicable to the sales contract could impose certain limitations on the extent of the protections afforded by such undertakings. Further limitations might also be imposed by contract in the form of a statement in the sales contract of certain circumstances in which the right of a party to be indemnified will be limited or altogether disapplied: (i) Exclusion of liability. Under English law a party can be indemnified by another party against the loss or damage which that first party has suffered, even though such loss or damage has arisen through that first party’s own negligence, as long as the agreed indemnity wording clearly recognises this principle. 4 Even in the absence of an express reference to negligence, words that clearly indicate an intention to cover all liability without exception, which could therefore include negligence, may be sufficient; phrases such as “all liability save that specified in the clause” and “arising from any cause whatsoever” have been held to be effective. Equally, however, the agreed indemnity could specifically exclude this principle if the parties so desire. (ii) Cap on liability. A sales contract could impose a cap on one party’s liability to the other for breaches of the sales contract. This cap could be applied annually and also over the lifetime of the sales contract, and could be expressed in either case as a fixed monetary amount or as a monetary amount derived, for example, from a defined percentage of the ACQ (12-004), multiplied by the weighted average of the contract price (13-001). Such a liability cap is intended to provide certainty to the overall liability of a party, and to assist a party in securing insurance cover for any potential liability which it may have. A cap under the sales contract should be expressed not to apply to the liability of the buyer to make payments due for gas delivered (20-002) nor to the buyer’s take and pay or take or pay commitments (16-003, 16-004). The cap could also be expressed not to apply in respect of a party’s liability under a mutual hold harmless or a guilty party pays liability allocation regime (36-002), nor in respect of a party’s liabilities under a tax indemnity regime (41-026), since in any of those instances the application of a cap on a party’s assumed liability could render meaningless the intended purpose of the liability allocation regime. Beyond that, however, the cap could apply to specific claims for damages for breach of the sales contract (e.g. in respect of a seller’s delivery failure (19-002), the delivery of off-specification gas (21-008) or for a breach of a warranty and representation (41-030)), and also to a party’s general liability in damages for breach of contract. A cap on liability will apply internally between the contracting parties and will not be readily construed as creating an indemnity to cover third party claims. (iii) Consequential loss exclusion. A sales contract will usually provide that a party which has a liability to pay damages to another party will not be liable to the other for any consequential losses. Such losses are usually defined broadly in the sales contract as lost profit opportunities and indirect losses, although this term is usually applied injudiciously. Often otherwise referred to as “loss of profit”, the meaning of what exactly constitutes a consequential loss is a topic which perennially vexes the legal community. Ever since the introduction in Hadley v Baxendale 5 of English law’s two-limb test for remoteness to decide which types of loss caused by a breach of contract may be compensated for by an award of general damages there has been considerable

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Limitations of Liability, UKBC-GASLNGS 493298801 (2023)

debate in respect of disputed commercial arrangements on where the line should be drawn between direct losses (which would in the ordinary course of events be recoverable as damages unless specifically excluded by contract) and indirect, or consequential, losses (which would not in the ordinary course of events be recoverable). What has the appearance of a loss of future anticipated profits (and ancillary, associated liabilities) could conceivably fall within the parameters of the rules set out in that case and so would ostensibly be recoverable by the innocent party within a damages claim. This is contrary to the widely held (and incorrect) belief that lost future profits are simply not recoverable under English law because they automatically constitute some sort of indirect or consequential loss. 6 The exclusion of consequential losses will be a matter for very careful drafting within a sales contract, and how the parties seek to define and interpret the heads of loss they intend to disapply. (iv) Wilful misconduct exclusion. A position sometimes found in a sales contract is a statement that a party could be made fully liable (without the benefit of any liability cap—which could include the limitation of liability which a liquidated damages provision could otherwise import) for a loss or liability which it has caused to another party through its wilful misconduct. 7 Wilful misconduct (sometimes also referred to as “gross negligence”—although in some contracts the two terms can be defined with quite different meanings) is a concept which under English law is not statutorily or judicially defined. For this reason wilful misconduct is typically defined contractually along the lines of an intentional and conscious, or reckless, disregard of the provisions of the sales contract. An open liability for wilful misconduct would mean that any cap or limitation on, or exclusion of, a party’s liability under the sales contract will not apply where wilful misconduct is proved. In practical terms, assuming the definition can be satisfied, wilful misconduct would extend, for example, to the deliberate damage by one party of property belonging to the other party or to a wilful decision of the seller to refuse to deliver gas to the buyer under the sales contract, to which the limitations of liability suggested by the seller’s delivery failure provisions in the sales contract could be disapplied. (v) Limitation to contract. A sales contract will usually provide (in an exclusive remedies provision) that the liabilities of the parties to each other for a breach of the sales contract are governed exclusively by the terms of the sales contract and that a party cannot can overlook this contractual limitation of liability by commencing an alternative action in tort in order to better recover its losses. The position under English law is that a wider duty of care based on the law of tort might also exist concurrently or in the alternative between the parties to a sales contract. 8 To prevent the possibility of overlapping claims in contract and tort, therefore, the sales contract could provide that the remedies for breach available to the parties should be governed by the contract and that any possibility of alternative tortious liability is expressly excluded. There may be circumstances, however, where extra-contractual remedies may be required by the parties (e.g. such as the right of a party to sue for the recovery of a debt or the requirement of a party to seek injunctive relief in certain circumstances) and these possibilities should also be recognised and accommodated within this principle.

Footnotes 4 5 6 7 8

EE Caledonia Ltd (formerly Occidental Petroleum (Caledonia) Ltd) v Orbit Valve Co Europe Plc [1994] 1 W.L.R. 1515; [1995] 1 All E.R. 174 CA (Civ Div). Hadley v Baxendale 156 E.R. 145; (1854) 9 Ex. 341. Addax Ltd v Arcadia Petroleum Ltd [2000] 1 Lloyd’s Rep. 493. See the AIEN GSA (6-002). Henderson v Merrett Syndicates Ltd (No.1) [1995] 2 A.C. 145; [1994] 3 W.L.R. 761 HL.

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The Efficacy of Liquidated Damages, UKBC-GASLNGS 493298799 (2023)

The Efficacy of Liquidated Damages Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation The Efficacy of Liquidated Damages 36-009 A sales contract could specify that a monetary amount is payable by a contracting party in respect of that party’s breach of the terms of the sales contract as liquidated damages. A notable example of this formulation is the shortfall price discount remedy (19-008). Whether or not a take or pay payment constitutes a liquidated damage is considered separately at 16-010. The following points will additionally be helpful in identifying how a liquidated damages formulation functions. The contracting parties may, within the terms of a sales contract, be predictive and seek to fix the amount of damages payable in the event of a party’s defined breach of the sales contract. These are liquidated damages, which would become payable by the party in default when the breach has occurred and the loss has crystallised. In principle such a damages formulation is perfectly valid. It may seem that a liquidated damages provision creates an obligation to make payment which is akin to a debt but such provisions have customarily been interpreted as creating an obligation in damages rather than in debt. As a matter of public policy under English law, a provision which has the object or effect of acting as a penalty against a party in order to secure the performance of a contract by that party will be unenforceable. English law presumes that a party has the freedom to breach its contractual obligations, subject to the payment of compensation (i.e. damages) to the “innocent” counterparty to the contract for its losses thereby incurred. A penalty clause (such as a clause which provides for the payment of an unconscionably large sum of money by a party in breach of contract) could operate oppressively, in a way that deters a party from exercising its freedom to breach a contract. The rule against penalties is itself an anomaly in the context of English contract law, because it constrains the freedom of the parties to agree a penal commitment if they so wish. For this reason the English courts are predisposed to find in favour of provisions which might otherwise be regarded as a penalty, and only rarely would the courts feel compelled to declare a provision as being unenforceable as a penalty. 36-010 The principal advantage of an agreed liquidated damages sum is the certainty which it bestows in that it allows the recovery of damages from the party in default without needing to address the proof of actual damage suffered by the innocent party. Liquidated damages are payable without incurring the idiosyncrasies of the rules on the remoteness of recovery and (arguably) without the need to oblige the innocent party to mitigate the loss to which the party in default would otherwise be subject. Liquidated damages will also be payable irrespective of the actual loss incurred by the innocent party, which could be greater or lesser than the amount of the liquidated damages sum. If a liquidated damages provision is found to be invalid then only the liquidation of liability which was affected by the provision will be invalid, and the underlying breach of contract will still be subject to a liability of the party in default to pay actual damages, subject also therefore to the application of the general rules relating to the quantification of such damages. Consequently, sensible commercial practice is to provide in a sales contract that if the liquidated damages formulation is found to be invalid the substitute liability of the party in default to pay actual damages will be capped at an amount equivalent to the maximum amount which would otherwise have been paid as liquidated damages if the formulation had been effective. A bare statement in a sales contract that an amount payable is a liquidated damage is not foolproof. To constitute an enforceable liquidated damages clause in respect of which the agreed damages will be recoverable, rather than a penalty clause in respect of which the agreed damages will be irrecoverable, the sum specified for payment will have to satisfy certain legal requirements. In Cavendish Square Holding BV v Makdessi 9 the court took the view that the key issue to consider, in deciding whether a purported liquidated damages provision might be regarded as penal in nature, was whether the provision could be justified

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The Efficacy of Liquidated Damages, UKBC-GASLNGS 493298799 (2023)

commercially as a legitimate means of protecting the interests of the beneficiary of the provision. Whether a liquidated damages liability is intended to survive termination of the contract in which it resides should also be considered carefully. 10

Footnotes 9 10

Cavendish Square Holding BV v Makdessi [2015] UKSC 67. Triple Point Technology Inc v PTT Public Co Ltd [2021] UKSC 29.

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Sovereign Immunity, UKBC-GASLNGS 493298802 (2023)

Sovereign Immunity Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 36 - Liability and Limitation Sovereign Immunity 36-011

Where a party to a sales contract is a state or government-linked entity (and even where a party is not at a particular time but might subsequently become so, through a later nationalisation or a transfer of interests) then that party should be required to waive any entitlement it might have to assert the defence of sovereign immunity against proceedings brought against that party in connection with the proper enforcement of the sales contract. Sovereign immunity will arise under applicable law. Under English law the State Immunity Act 1978 provides for the immunity of a state (which could include government departments and agencies) from the jurisdiction of the domestic courts (particularly in respect of the enforcement of judgments), and also provides for an exception to such immunity to apply where the state has submitted to such jurisdiction. A sales contract could therefore provide that the state party irrevocably waives its right to sovereign immunity (including in respect of the enforcement of judgments against it). If a party to the sales contract is capable of asserting sovereign immunity then any warranties and representations which might otherwise be given in the sales contract (41-030) to the effect that a party is a legal entity capable of being sued and is not entitled to immunity from suit will also need to be qualified accordingly. End of Document

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Introduction, UKBC-GASLNGS 493298810 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 37 - Third Party Involvement Introduction 37-001 The principal actors in relation to a sales contract will be the buyer and the seller. Notwithstanding that, a third party (that is, a person other than a party to the sales contract) could become involved in the ongoing performance of the sales contract. Such a third party could become involved in various ways, and the potential rights and obligations of such a person will need recognition and careful management in the sales contract. End of Document

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Contractors, UKBC-GASLNGS 493298806 (2023)

Contractors Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 37 - Third Party Involvement Contractors 37-002 A sales contract could provide that a party can appoint a person (which could be an independent contractor or which could be an agent or an affiliate of that party) to discharge certain of the party’s obligations under the sales contract (e.g. the construction of facilities (23-002), the performance of operational activities such as measurement (22-002) or maintenance (24-002), or the provision of marine services in respect of LNG ships (33-005)). The customary construction is that a party can appoint a contractor (unless the sales contract prohibits the appointment), provided that the appointing party also remains liable under the sales contract for the performance of the relevant functions. Responsibility for the performance of certain functions could be abrogated to a contractor, but without absolute abrogation of the liability for a failure of the abrogated performance. A person which is so appointed as a contractor could then become part of a group of associated persons (see below). End of Document

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Party Representatives, UKBC-GASLNGS 493298807 (2023)

Party Representatives Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 37 - Third Party Involvement Party Representatives 37-003 Where a group of parties are acting together in a common capacity in relation to a sales contract an administrative agreement could be put in place which appoints a single person to act on behalf of those parties, in the interests of procuring greater administrative convenience in relation to the sales contract. Such an administrative agreement could apply where gas is sold severally by a number of individual sellers to the same buyer (whether through a number of separate but identical sales contracts or by the entry of those sellers into a single sales contract) and those sellers appoint a single person to act as a designated sellers’ group representative in the unified management of the underlying sales contract(s) on their behalf (9-004). Several elements will be relevant to consider in relation to the appointment of such a person: (i) Selection of the representative. The representative could be one of the sellers (which is chosen by agreement between the sellers) or it could be an independent third party which is selected and appointed by contract by the sellers. The more conventional route in gas commercialisation projects is that the representative will be one of the sellers, rather than that it is an independent third party, typically for two reasons: a seller will likely have better knowledge about the sales contract(s) than a third party would have; and a third party would expect to be paid a fee for the provision of its services, which an appointed seller might not. (ii) The role of the representative. The terms of the agreement which appoints the sellers’ group representative should be clear in establishing what the representative is expected to do in the performance of its functions in relation to the sales contract(s). This could relate, for example, to receiving and managing buyer nominations and nomination variations for pipeline gas deliveries (18-002), scheduling annual and more specific LNG ship movements for the loading and unloading of LNG cargoes (33-008, 33-009), issuing invoices for payment by a buyer (20-002) and the management of scheduled maintenance rights (24-002). (iii) Internal governance between the appointing parties. In the appointment of the sellers’ group representative the sellers could set out (in the appointing agreement) the circumstances in which the representative could be removed from office and replaced if necessary, and also any internal limits on the representative’s authority to act on behalf of the sellers (such that, for example, the representative will have no authority to prosecute or to settle disputes with the buyer (whether at all or beyond a certain monetary value) or to modify or to terminate the sales contract(s)). (iv) External presentation. The buyer will want to know that it can rely on what the sellers’ group representative says or does as being the will of the sellers. The buyer will not wish to be obliged to verify whether the representative’s actions are within any internal limits on the representative’s authority to act on behalf of the sellers (see above), instead relying on the presumptions that the

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Party Representatives, UKBC-GASLNGS 493298807 (2023)

actions of the representative towards the buyer, and of the buyer towards the representative, will bind each of the sellers as if they were directly involved in the representative and buyer dialogue. (v) Effects upon the sales contract(s). The appointment of the sellers’ group representative relates only to management of the underlying sales contract(s) and it should not modify the positions established by the sales contract(s), whether expressly or by implication. Where the sellers each have several liability to the buyer the appointment of the representative should not modify that liability. The principle of collective administration should not be assumed to create collective responsibility. By the same token, the sellers’ group representative should not be taken as an absolute proxy for the sellers and should have no direct liability to the buyer in respect of the sales contract(s). The example which is set out above, of where one of the sellers is appointed to act as the sellers’ group representative, is not the only situation in which an administrative agreement of the form suggested could be needed in a gas commercialisation project. Equally, such an agreement could be necessary where there is a buyer consortium (9-006). In some pipeline gas sales projects where there is a number of individual sellers selling gas to the same buyer through a number of separate GSAs the sellers and the buyer could enter into what is called a “common stream agreement” (sometimes also called a “whole stream agreement”), to provide for the consolidated management of nominations and variations (18-002, 18-008) and for the mathematical aggregation of gas flows. Under such a common stream agreement the sellers will appoint one of their number to act as their common representative for the administration of the GSAs (where the appointment would reflect the principles specified above). End of Document

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Associated Persons, UKBC-GASLNGS 493298808 (2023)

Associated Persons Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 37 - Third Party Involvement Associated Persons 37-004 Despite the identification of the principal actors in relation to a sales contract (see above) there is also a number of associated persons who may also need to be taken into account in the functioning of the sales contract. Those associated persons are, in respect of a party: (i) the affiliates (9-009) of a party; (ii) the appointed agents, contractors and consultants of a party; and (iii) the directors, officers and employees of any of the foregoing entities. This extended group of associated persons will principally feature in the liability allocation provisions of a sales contract, such that, for example, a mutual hold harmless liability allocation model which applies in a contract between the parties (36-002) is extended also to afford protection to those associated persons. The entitlement to such protection will be a right of the associated persons, which (if the contract is governed by English law) can be enforced directly by those persons even though they are not actually party to the contract (see below). End of Document

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Third Party Rights, UKBC-GASLNGS 493298811 (2023)

Third Party Rights Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 37 - Third Party Involvement Third Party Rights 37-005 Where a sales contract is governed by English law and expressly identifies a third party (such as an associated person—see above) and by a term of the sales contract a benefit is purportedly conferred on such a third party then the parties should recognise the effects of the Contracts (Rights of Third Parties) Act 1999, which could allow such a third party to enforce the benefit of the sales contract in its favour notwithstanding that such third party is not actually an express signatory to the sales contract. In the context of pipeline gas sales and transportation arrangements the following are examples of where a third party claim for a right to enforce the benefit of a contract, to which that third party is not a party, might be argued to exist: (i) Revenue flows. The transporter under a GTA might expect to be paid its tariff and/or capacity payments (29-002) and any ship or pay receipts (29-009) by the shipper out of the gas sales proceeds which the shipper, in its capacity as the seller, has received under a GSA. Similarly, the seller under a sales contract might expect to be paid its gas sales proceeds and take or pay receipts out of the proceeds of any end-user resale contracts where the buyer under the sales contract is acting as an aggregator (6-010). Where these expectations are spelled out in the GSA or the GTA then the transporter might argue that it has an indirect benefit under the GSA and the seller might argue that it has an indirect benefit under the end-user resale contracts, and either party might seek to step-in to enforce the recovery of payments due under those contracts where the seller or the buyer respectively have failed to do so. (ii) Liability limitation and indemnity protection. The transporter under a GTA might be sued in tort by the buyer under a GSA for damage caused by the delivery of offspecification gas at the delivery point (not least since the buyer and the transporter are unlikely to have a direct contractual relationship which could preclude such an action). In such a situation the transporter might argue that the benefit of any liability limitation and indemnity provisions in the GSA as between the seller and the buyer in relation to damage to each other’s facilities and/or the delivery of off-specification gas should apply equally in favour of the transporter in the defence of a claim made by the buyer. Similar considerations could apply involving the shipowner, for the charter party for the carriage of LNG. The same point of principle might apply as between the end-users (6-010) and the seller where there is no express contractual relationship between them and the seller might instead be looking to rely on an extension of liability limitation and indemnity provisions from the end-user resale contracts in the defence of any claims made in tort against the seller by the end-users. A sales contract might even go on to address how the relationship with third parties is structured, through the application of a 37-006 circular indemnity regime in respect of third party claims (37-007) and through the specific extension of indemnity rights and obligations and limitations of liability in respect of third parties. The 1999 Act specifically recognises that a third party might seek to avail itself of certain terms in a contract which exclude or limit liability. 1 The parties to any of the relevant contracts might therefore be nervous of accepting the principle that certain third parties could seek to enforce the benefit of the relevant contract to which only they and not the third party are privy, unless this is what the

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Third Party Rights, UKBC-GASLNGS 493298811 (2023)

parties specifically intended. In the interests of certainty the relevant contract could therefore contain the wording necessary to make it clear that the protections afforded by the 1999 Act are not intended to apply in favour of unintended third parties. Furthermore, where a particular contract does confer a benefit on a third party to which the 1999 Act applies then it is arguable that a novation agreement (38-004), which has the effect of extinguishing the novated contract and bringing a new contract into existence in a way which could alter the third party’s entitlement (e.g. by causing the benefit accruing to the third party to come from the transferee rather than the transferor), will under the terms of the 1999 Act 2 require the consent of the third party. Consequently the parties to the relevant contract should also consider removing such third party benefit and so excluding the application of the 1999 Act in order to better ensure that the relevant contract can be novated without the need for such third party consent. The regulatory notion of third party access rights is considered separately at 7-009.

Footnotes 1 2

Contracts (Rights of Third Parties) Act 1999 s.1(6). Contracts (Rights of Third Parties) Act 1999 s.2.

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Third Party Claimants, UKBC-GASLNGS 493298805 (2023)

Third Party Claimants Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 37 - Third Party Involvement Third Party Claimants 37-007 A third party could make a claim against any party to a sales contract where that third party says it has suffered loss or damage because of the acts of a party in the performance of the sales contract. The third party will not be bound by any of the governing law and jurisdiction provisions or the dispute resolution provisions of the sales contract and will be free to make its claim how, where and when it likes. Because the third party could make its claim against any or all of the parties, regardless of which party might actually have cause loss or damage to the third party, a sales contract could contain a mechanism for adjusting liability to the third party between the parties (36-004). End of Document

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Introduction, UKBC-GASLNGS 493298813 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 38 - Transfers Introduction 38-001 Each party will have entered into a sales contract on the basis that it is comfortable with the other party’s reputation and capacity to perform its contractual commitments. The sales contract should therefore carefully control the circumstances in which a party can devolve its contractual position to another person, whether directly or indirectly and temporarily or permanently. The sales contract could also cater for any changes in a party’s corporate structure which might adversely affect the operation of the sales contract during its lifetime. End of Document

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Transfers under Applicable Law, UKBC-GASLNGS 493298812 (2023)

Transfers under Applicable Law Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 38 - Transfers Transfers under Applicable Law 38-002 Any transfer of interests under the sales contract (whether by assignment or novation—see below) will see a transferee take over the position of the transferor in that sales contract. It will be necessary to ensure that the transferee can fully perform all of the obligations and interests intended to be so transferred. Some commitments under the sales contract could be personal to the transferor and incapable of effective performance by the transferee (such as an ongoing warranty and representation —41-030), which could result in the commission of a breach of the sales contract by the transferee upon conclusion of the transfer of interests. English law prescribes certain mechanisms by which a party to a contract might seek to transfer its rights and obligations under that contract to another person, although within the terms of a contract the position at law is almost always expressly modified by further agreement between the parties. Under s.136 of the Law of Property Act 1925 a party (the transferor) may freely transfer the benefit of its rights only in the sales contract to a third party (the transferee) by a bilateral assignment of those rights without the consent of the non-transferring party, subject to notice of the assignment of those rights being given to the non-transferring party to be effective as a legal assignment:

38-003 A purported statutory assignment which for some reason is defective (for example because of a failure to comply with all the requirements of s.136) may still be valid as an assignment under the rules of equity, subject to the limitations which apply to an equitable assignment. An equitable assignment of a right need not be in writing, nor in any particular form. Under English law the obligations (rather than the rights) which are created by a contract cannot be transferred, however, without the consent of the non-transferring party. 1 A person to whom a contractual right has been assigned will generally not expect to also assume the obligations or the liabilities of the assignor under the original contract. That said, some decisions under English law have suggested that the benefit of a contract enjoyed by a transferee (through the assignment of rights) could also be subjected to the corresponding burden of the same contract. 2 The preferred view is that this interpretation will be confined

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Transfers under Applicable Law, UKBC-GASLNGS 493298812 (2023)

to a limited set of circumstances—principally, where the burden is closely related to the assigned benefit and the parties to the assignment can clearly be shown to have intended that the benefit assigned should also be subject to the burden, which will be a matter to be assessed according to the intentions of the parties. 38-004 To effect a total transfer of rights and obligations will require an agreement for novation which will be entered into between the transferor, the transferee and the non-transferring party:

The critical difference between an assignment (of rights) and a novation (of rights and obligations) is that under an assignment the transferor will remain liable to the non-transferring party to perform its continuing obligations under the sales contract. Under a novation the transferor will be replaced completely in favour of the transferee and effectively a new contract is created with the consent of all the relevant parties (and possibly certain third parties. For this reason a party which wishes to completely transfer all of its interests (that is, its rights and obligations) in a sales contract to another person will require a novation rather than an assignment and for this the consent of the non-transferring party (to be realised through the requirement that such party will execute the novation agreement) will be necessary.

Footnotes 1 2

Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] A.C. 414 HL. Tito v Waddell [1977] Ch. 106; [1977] 2 W.L.R. 496.

End of Document

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Transfers Regulated by Contract, UKBC-GASLNGS 493298814 (2023)

Transfers Regulated by Contract Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 38 - Transfers Transfers Regulated by Contract 38-005 If a sales contract is silent on the ability of a party to transfer its interests to another person then that party will be free to do so as it sees fit within the confines of applicable law (see above), subject only to the necessity of securing the consent of the nontransferring party where a novation is required. The parties to a sales contract could be reluctant to permit the free transferability of interests within their commercial arrangements and so could seek to prohibit a transfer completely or to make a transfer subject to compliance with certain provisions of the sales contract. Rarely will a sales contract be silent on this issue and at least some conditions or restrictions will be imposed in the sales contract, typically as follows: (i) Consent of the non-transferring party. A sales contract will usually provide that a party cannot assign, novate or otherwise transfer any of its interests (whether rights or obligations) to another person without the consent of the non-transferring party. In this instance a purported transfer of interests by the transferor in contravention of the requirement for consent could be invalid against the non-transferring party, and could trigger a specific termination right for the non-transferring party (39-005) although such a transfer would still be effective as between the transferor and the transferee (and could lead to a separate claim for a breach of contract within those transfer arrangements). It might be provided that the requirement for the non-transferring party’s consent cannot be unreasonably conditioned, withheld or delayed and the sales contract might specify that it will not be reasonable for the non-transferring party to withhold its consent where the proposed transferee is able to demonstrate adequate financial and technical ability to perform the sales contract in place of the transferor. The circumstances in which it would be reasonable for a party to withhold its consent in the context of commercial contracts have been considered judicially, 3 often based on the principles applied by the English courts in the context of disputes between landlord and tenant. In essence, a party will not be entitled to refuse its consent on grounds which are unrelated to the proper subject matter of a contract, or where consent is withheld so as to extract some collateral benefit, or where withholding consent would result in a disproportionate difference between the benefit to the non-transferring contracting party and the detriment to the transferring party. These are necessarily generalised principles, however, and must be applied relative to the circumstances of the sales contract. (ii) Continuation of guarantees. A sales contract may require that as a condition of any transfer of interests the transferor will ensure that any guarantee or other collateral support commitment (15-001) given in support of its obligations will be replicated in respect of the transferee (usually by provision by the transferee of a replacement guarantee or other collateral support commitment). (iii) Regulatory consents. It may be a regulatory requirement that the consent of a particular regulatory or supervisory agency be obtained prior to a transfer of interests becoming effective. (iv) Transfers to affiliates.

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Transfers Regulated by Contract, UKBC-GASLNGS 493298814 (2023)

A sales contract might prescribe a particular regime applicable to the transfer of interests by a party (as transferor) to an affiliated company of that party (as transferee). There will usually be a specific definition of what constitutes an affiliate (9-009) and a common provision is that a party can transfer its interests in a sales contract to an affiliate without the need for the prior consent of the non-transferring party, provided that the transferor remains fully liable for the acts or omissions of the affiliate transferee. A sales contract might also provide that if, subsequent to the transfer of interests to an affiliate, that affiliate ceases to satisfy the definition of an affiliate then the transferor will procure a transfer back of the interests in the sales contract which had been transferred to and held by the affiliate. This mechanism is intended to prevent a party from transferring its interests in the sales contract to an affiliate, thereby avoiding the need for the consent of the nontransferring party, and then procuring a sale of that affiliate and effectively allowing a free transfer of the underlying sales contract to another person. (v) Transfers in whole or in part. A sales contract might permit only the transfer of interests in whole, rather than part-interest transfers. This would be useful, for example, to preclude the seller from disassembling a single sales contract and transferring part interests to several third parties, as multiple sellers. (vi) Corresponding transfers. A sales contract might provide that a transfer by a party of its interests in a sales contract must be accompanied by a corresponding transfer of interests in other relevant gas project documents, so that the chain of title within the overall gas project is kept intact. For the seller under a sales contract this could entail a transfer of its interests in any upstream concessions or joint operating agreements and for the buyer a transfer of its interests under any end-user resale contracts or downstream concessions. For whichever party has undertaken the gas transportation obligation this could also entail the transfer of a corresponding interest under a GTA or a charter party. A party could be reluctant to commit to the restriction that if in the future it wishes to transfer its interests in a sales contract to 38-006 another person then that party must first obtain the consent of the non-transferring parties, out of concern that such consent will not be forthcoming and the proposed transfer will not be realised. The same risk applies where, notwithstanding the absence of an express requirement for the consent of a non-transferring party, that non-transferring party is effectively being asked for its consent because of the requirement that it executes a novation agreement, which it may refuse to do. To avoid the need for such consent, therefore, a sales contract might adopt a transfer mechanism whereby a party can freely transfer its interests under the sales contract to another person as a transferee, subject only to a requirement that the transferee covenants directly with the non-transferring parties (which covenant can be unilaterally given by the transferee) to observe the requirements of the sales contract. By this mechanism the transferor could be able to transfer its interests to the transferee and, since the non-transferring parties have effectively pre-consented to such a transfer by execution of the sales contract which contains such a mechanism, this could be done without the need to obtain the consent of the non-transferring parties at the time of the transfer. The non-transferring parties will be able to enforce the sales contract thereafter directly against the transferee because of the covenant given by the transferee to the non-transferring parties as a condition of the transfer. This mechanism is sometimes found in sales contracts but by equal measure the parties may be nervous of the lack of control over the identity of the other person as a potential transferee which it imports and instead they could instead elect in the sales contract for more conventional transfer provisions which expressly require the consent of the non-transferring parties at the time of the intended transfer.

Footnotes 3

British Gas Trading Ltd v Eastern Electricity Plc [1996] EWCA Civ 1239, Porton Capital Technology Funds v 3M UK Holdings Ltd [2011] EWHC 2895 (Comm), Braganza v BP Shipping Ltd [2015] UKSC 17; [2015] 1 W.L.R. 1661

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Most recently, in Apache North Sea Ltd v Ineos FPS Ltd [2020] EWHC 2081 (Comm) the Court ruled that it was not permissible for a person which was contractually required to provide its consent (where, under the contract, consent was not to be unreasonably withheld) to make the provision of that consent conditional on an outcome which would enhance the benefit of the contract to that person. This decision suggested that the requirement for consent under a contract should not be used as a lever to re-write the original bargain between the contracting parties. End of Document

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Financing Transfers, UKBC-GASLNGS 493298815 (2023)

Financing Transfers Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 38 - Transfers Financing Transfers 38-007 A sales contract will usually provide that a party can enter into a transfer (in the sense of a pledge or collateralisation) of its interests in the sales contract to third party lenders as security for any advances made by those lenders to that party, limited usually to support the financing of that party’s obligations (e.g. the construction of facilities) under the sales contract. This is not a transfer of interests in the sales contract in the conventional sense, since the financing party will still remain party to the sales contract. An actual transfer will only become effective if and when the lenders elect to enforce their security interests by becoming party to the sales contract in place of the financing party. A sales contract could also prescribe a series of obligations which would apply between the non-transferring parties and the lenders in protection of their respective interests in the event of such a transfer, such as the obligation of the non-transferring parties to enter into a further agreement with the lenders in order to perfect the lenders’ security interests and the obligation of the lenders not to take steps to enforce their security over the sales contract in a manner which might adversely affect the nontransferring parties without at least first notifying the non-transferring parties. Alternatively these obligations might be recited in a direct agreement made between the lenders and the parties to the sales contract (and a sales contract could provide for the need for a further direct agreement). End of Document

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Change of Control, UKBC-GASLNGS 493298816 (2023)

Change of Control Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 38 - Transfers Change of Control 38-008 In any long-term sales contract each party runs the risk that there might be some deterioration in the creditworthiness and/or the technical competence of the other party over the lifetime of the sales contract. Consideration has previously been given to the provision of collateral support in respect of a party’s commitments (15-001) which (if obtainable) should provide some comfort in respect of a change of circumstances which could affect a party’s ability to perform. It may also be the case, however, that whilst a particular party is performing well that party finds itself owned by a different commercial entity to that which owned it when the sales contract was executed. Consequently the sales contract could contain a change of control provision which will provide that if a party is subjected to a change of control (as defined—which could relate to the immediate ownership of a party, to a much wider corporate reorganisation or to a takeover of the entire corporate group to which the party belongs, and in each case with a defined percentage amount of the interest subject to the change of control) then the other party may take certain actions to protect its interests under the sales contract. 38-009 Notwithstanding a change of control in respect of a party to a sales contract it is perfectly possible that the party which has undergone the change of control will continue to be able to perform its contractual obligations as before. After all, the identity of that particular party will not have changed. That said, however, there may still be a demand for a change of control provision in the sales contract in order to address the following issues: (i) Overall detrimental performance. Despite a satisfactory continuation of the performance of the sales contract in the period immediately following the change of control there may be a concern that in the longer term a party’s new parent might operate the wider corporate group imprudently and to the ultimate detriment of the sales contract. (ii) Commercial preference. It may be, for example, that under the sales contract the seller is reluctant to sell gas to a buyer which has become owned by a competitor of the seller, or that the buyer may be reluctant to buy gas from a seller which has become owned by a competitor of the buyer. (iii) Re-guarantee protection. It may be necessary to protect the value of a parent company guarantee where there is a re-guarantee provision in the sales contract (15-003), on the basis that the new parent may not be as attractive as a prospective guarantor as the old parent was. Where there is a change of control provision in a sales contract the parties should also be careful to understand exactly what levels of control are affected and in particular to determine whether the change of control provision applies only to the immediate parent of a party to the sales contract, or applies beyond that and further up into a party’s corporate structure. The change of control provision might be disapplied in respect of purely internal corporate reorganisations. 38-010 In recognising the proper rationale for the application of a change of control provision the sales contract might also preclude the parties from relying on a change of control simply as an excuse for evading a contractual commitment. It may be that

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Change of Control, UKBC-GASLNGS 493298816 (2023)

the change of control provision will be expressed to apply only where the party exercising the right has a reasonable belief that its commercial interests will be adversely affected in consequence of the change of control, possibly with recourse to an independent expert (40-004) in the event that the issue is disputed. Where, however, there has been a change of control (within the definition of the sales contract) then the sales contract should provide for what then happens—the sales contract might provide that the other party has the right to call for the provision of some form of a collateral support for the remainder of the sales contract, or that the other party might even have a right to terminate the sales contract (39-005). End of Document

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Introduction, UKBC-GASLNGS 493298820 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 39 - Termination Introduction 39-001 A sales contract will not have perpetual existence. A sales contract could come to an end because the basic term which it describes has expired and there has been no extension of time to enable further performance, because the substance of the sales contract has been fully performed, because an automatic event of termination applies or because an event entitling a party to terminate the sales contract during its lifetime has arisen and has been exercised. End of Document

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Expiry or Proper Performance, UKBC-GASLNGS 493298819 (2023)

Expiry or Proper Performance Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 39 - Termination Expiry or Proper Performance 39-002 The principal, intended manner in which a sales contract will come to an end is by the full and proper performance by the contracting parties of their respective obligations under the sales contract, such that nothing remains to be performed, the sales contract becomes fully executed (that is, performed) and the parties are discharged from any further performance (subject only to the continued observance of any commitments which are expressed to survive termination). The fact of contractual performance is usually self-evident, but in the event of a dispute regarding satisfactory performance which falls to a court or other arbitral body (Ch.40) to resolve, an assessment will be made of whether a party’s actual performance satisfies the standards set by the contract, examining all the relevant facts and the applicable law. In making this assessment the court could choose to ignore a trivial failure to perform the contract which is de minimis. In a supply-based contract for the sale of gas (6-005) the usual expiry formulation is that the sales contract will come to an end upon the expiry of a defined basic term, unless the sales contract is evergreen (10-002). A sales contract might also prescribe that it will terminate upon the delivery by the seller of a specified quantity of gas, which might occur ahead of or later than a defined basic term. Although in a supply-based contract these two events could occur simultaneously and so in theory only one of these events of expiry needs to be nominated, the non-delivery of gas by the seller (due, for example, to the occurrence of a seller’s delivery failure or events of force majeure or because of a lack of demand for gas on the buyer’s part) will almost certainly mean that over the basic term an aggregate quantity of gas which is less than the envisaged contract quantity (12-003) will have been delivered when the scheduled expiry date is reached. Consequently, to avoid confusion the sales contract might be written to expire on the first (or the last) to occur of the scheduled expiry date or the delivery of a specified quantity of gas. A depletion-based contract (6-005) is intended to subsist for the life of the identified gas field. In practice, however, there will come a point when the value of the production of gas has fallen because of depletion to a level where it might no longer be economic for the seller to produce that gas. Consequently the sales contract could contain a right of the seller to terminate the sales contract because its performance has become uneconomic, subject to the possibility of an agreed plateau period (see below). A depletion-based contract, or at least a hybrid form of such a sales contract, might also provide that, without prejudice to the seller’s economic termination right, the sales contract will in any event terminate either after a defined period of time from the start date has elapsed or after a defined quantity of gas has been delivered by the seller. End of Document

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Discharge by Breach, UKBC-GASLNGS 493298818 (2023)

Discharge by Breach Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 39 - Termination Discharge by Breach 39-003 A sales contract will impose obligations on the parties, and the principal expectation of the contracting parties is that those obligations will be performed. In the event of a failure to perform an obligation the non-defaulting party may have a right to claim damages for breach of contract, but under English law a failure to perform could also give rise to a right of the nondefaulting party to terminate the contract. Although the popular vernacular here is to talk of an affected contract having been terminated, or discharged, by the breach of the defaulting party, this is not entirely accurate as the contract is not terminated (and it is certainly not terminated ab initio). Rather, the proper position is that where the circumstances described in this section are applicable, all of the primary, executory (that is, unperformed) obligations of the parties are immediately brought to an end and are replaced by a secondary obligation of the defaulting party to pay damages. 1 Although by this formulation an end to the primary obligations of the contract is implied, this is not consistent with the principle that certain provisions of the contract will also survive termination (see below). 39-004 Under English law the grounds for the discharge of a sales contract because of a party’s breach can be distinguished between a repudiatory breach of contract and an anticipatory breach of contract: (i) Repudiatory breach. Where a party to a contract has defaulted in the performance of the terms of the contract then, in some circumstances, the non-defaulting party may be entitled to treat itself as having been discharged from the obligation to render any further performance (and to refuse to accept any further performance from the party in default). This, in essence, is the doctrine of repudiatory breach, which relies on the notion that the breach of contract by the party in default evidences a desire by that party no longer to be bound by the contract. When faced with a possible repudiatory breach the non-defaulting party could elect to treat the contract as continuing, notwithstanding the breach (called an “affirmation”) and to make a claim for damages for the loss it has suffered, or the non-defaulting party could elect to bring the contract to an end (that is, to accept the repudiation by the party in default and to rescind the contract) and also to claim damages. The former option may be preferable if it is difficult for the non-defaulting party to secure a suitable replacement contract. If the nondefaulting party elects to accept the repudiation of the contract the act of acceptance takes no particular form, although it will require an effective communication of that election to the party in default (which could also take the form of an unequivocal act by the non-defaulting party which evidences the making of that election). Reliance by the non-defaulting party on a term of the contract will not necessarily amount to an affirmation, at least where the non-defaulting party also evinces a desire (despite that reliance) to treat the contract as discharged and to rescind it. Not every default by a party in the performance of its obligations under a contract will be treated as a potential repudiatory breach. Where a breach of contract is not a repudiatory breach the non-defaulting party’s remedy will be in damages for breach of contract, and the contract will continue. Thus, it is necessary to identify carefully whether a particular breach of contract is a potentially repudiatory breach of contract, which will be a question of degree.

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Discharge by Breach, UKBC-GASLNGS 493298818 (2023)

(ii) Anticipatory breach. Where one party to a contract, by words or by conduct, plainly declares or evinces an intention no longer to continue to perform the contract (whether at all or in the manner required by the contract) then a renunciation (sometimes called an “anticipatory breach”) of the contract by that renouncing party could have occurred. In this situation the other party to the contract will be entitled to treat itself as having been discharged from the necessity for further performance if the prospective non-performance by the renouncing party would be of sufficient magnitude to deprive that other party of substantially the whole benefit it should have obtained from the contract. 2 The act of renunciation may occur at, or at any time before, the time fixed by the contract for the performance of an obligation. The act of renunciation may be an absolute refusal to perform, or a declared intention to perform the contract in a manner which is substantially inconsistent with the required method of performance. Not every threatened failure to perform a contract will amount to an act of renunciation, however, since an actual breach of contract could be remedied satisfactorily by an award of damages. The act of renunciation must be made clear. 3

Footnotes 1

2 3

“ … there is substituted by implication of law for the primary obligations of the party in default which remain unperformed a secondary obligation to pay money compensation to the other party for the loss sustained by him in consequence of their non-performance in the future and … the unperformed primary obligations of that other party are discharged.” Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827; [1980] 2 W.L.R. 283, per Lord Diplock. Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] A.C. 757. “It is not a mere refusal or omission of one of the contracting parties to do something which he ought to do, that will justify the other in repudiating the contract; but there must be an absolute refusal to perform his side of the contract.” Freeth v Burr (1873-74) L.R. 9 C.P. 208, per Keating J.

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Events of Termination, UKBC-GASLNGS 493298821 (2023)

Events of Termination Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 39 - Termination Events of Termination 39-005 Consideration is given elsewhere to the circumstances in which a sales contract can be terminated because of the failure of a party to satisfy or waive a condition precedent by a required date (10-005) or for a prolonged event of force majeure (35-001). A sales contract will typically also recite several other circumstances in which the sales contract can be terminated during its lifetime (usually at the option of the affected party, rather than automatically so), such as the following: (i) Termination by one party because of an unremedied default of the other party. This may be expressed to apply only to what are called “material” breaches, which is often left undefined (and consequently could give rise to later dispute), and may also be defined to include persistent (although not material) breaches. Under a sales contract the primary obligation of the buyer is to pay money (whether for gas delivered by the seller or under the take and pay commitment or the take or pay commitment) and the sales contract usually makes separate provision for the buyer’s default and prospective termination rights in respect of this payment obligation. The seller’s primary obligation is to deliver gas in respect of the buyer’s requirements which meets the required quality specification and the sales contract usually also separately provides remedies for the seller’s default and even prospective termination rights in respect of this obligation (see below). Consequently, the right of termination for unremedied default might remain to apply in respect of a breach of any other obligations which the parties have not otherwise legislated for in the sales contract (e.g. in relation to a facilities obligation (23-002), where such a termination right could afford useful protection to a party which might wish to escape its own commitments under a facilities obligation by terminating the sales contract where the other party has failed to meet its obligations, or in relation to an obligation upon a party to procure a re-guarantee (15-003) when required, or in relation to a purported transfer of interests which ignores the transfer requirements of the sales contract). Given what could be significant debate about what constitutes a default (and particularly a material one) it might be preferable in the sales contract to rely on specific termination rights in respect of specific breaches of obligations, rather than a general right. (ii) Termination for the seller’s failure to deliver gas. A sales contract might provide for a right of termination by the buyer in the event of a prolonged failure of the seller to deliver gas (whether classified as a seller’s delivery failure (19-002) or relieved by force majeure (35-001)) where the failure to deliver gas has reached a defined threshold. This would enable the buyer to be released from a sales contract which has been characterised by a persistent failure of the seller to deliver gas and instead to seek an alternative gas delivery commitment. Such a right might not apply, however, where a deliver or pay formulation (19-006) exists in the seller’s favour. The seller might argue that the sales contract should not be terminable where the seller has compensated the buyer for the failure to deliver gas by whatever remedy is provided in the sales contract, akin to the manner in which the sales contract might not be terminable by the seller for the buyer’s failure to take delivery of gas because of the comfort afforded by the take and pay or the take or pay commitment (see below), but the buyer might be less inclined to see the seller’s obligation to so compensate the buyer as a permissible alternative method of contract performance which should preclude the right of termination. A right of termination in favour of the buyer for the seller’s failure to perform its gas delivery obligations might also apply where the seller’s failure has persisted for a defined period of time after the start date, notwithstanding that the customary threshold quantity as a precondition of termination for the seller’s delivery failure

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Events of Termination, UKBC-GASLNGS 493298821 (2023)

of gas has not been reached. As an alternative to outright termination of the sales contract the buyer or the seller might instead be afforded a right to reduce the agreed contract quantities in consequence of the seller’s prolonged delivery failure. This would keep the sales contract in place but would enable the buyer to secure the delivery of gas from elsewhere to the extent of the reduction. (iii) Termination for the buyer’s failure to take delivery of gas. A sales contract might recite that the sales contract can be terminated by the seller because of the buyer’s failure to take delivery of gas which reaches a defined threshold. This overlooks the seller’s right to receive revenue under a take and pay or a take or pay commitment (16-003, 16-004), however, notwithstanding the buyer’s election not to take delivery of gas, and consequently such a right of termination might not be required by the seller nor agreed to by the buyer because of that commitment. Alternatively the seller might see value in such a right in order to enable the seller to terminate the sales contract in favour of gas sales opportunities which present the prospect of a more regular revenue stream, at least in the case of an annualised take or pay commitment. (iv) Termination by one party for the other party’s insolvency. What constitutes insolvency could be defined in the sales contract or by reference to a statutory definition (such as is provided by the Insolvency Act 1986 in the UK) and this could range from an inability to pay debts as they fall due for payment through to a formal declaration of a party’s insolvency or even the entry of a party into liquidation, receivership or administration. The reason for reserving such a right of termination in a sales contract is because a party may be unwilling to remain in a contractual relationship with a financially troubled counterparty, although it may also be that the parties are content to continue to perform the sales contract, notwithstanding insolvency, if gas continues to be produced by the seller and the buyer continues to meet its payment obligations. In such a situation further comfort will be afforded where a party has other rights to suspend its performance under or even to terminate the sales contract in the event of a failure to make payment (39-005), and where collateral support exists (15-002). In some jurisdictions the application of a contractuallyagreed right could be qualified by a statutory prohibition upon the right of a party to terminate a contract because of the insolvency of a counterparty. 4 (v) Economic termination. An economic termination right typically applies in favour of the seller in a depletion-based sales contract (6-005) although in principle a buyer might make a claim for an equivalent right of termination where it is no longer economic for the buyer to continue to take delivery of gas. The seller may resist this, however, and the buyer may need to rely on any material adverse change provisions (35-018) in the sales contract in order to address this risk. (vi) Termination by applicable law. There could be circumstances where applicable law directly declares or effectively renders a sales contract to be unperformable. The sales contract might provide that the sales contract is capable of termination by applicable law but even in the absence of such an express provision, however, the sales contract could still be rendered unenforceable because of its subsequent illegality. It may also be that force majeure provisions can be applied in respect of such an event (35-001). (vii) Termination for loss of consents or other contracts. It may be that a party to a sales contract is unable to continue to perform the sales contract because of the loss of a critical operational consent or concession which cannot be renewed by the affected party. Such an event could trigger an automatic termination of the sales contract, or it could be dealt with through the application of force majeure provisions. In the latter case, however, this would impose the requirements of the force majeure regime. A party would not be able to claim such relief where the consent or concession was withdrawn or had ended because of that party’s act or omission, and the ability of that party to terminate the sales contract would depend upon the passage of any requisite period of time before the right of termination in respect of the prolonged event of force majeure has arisen. Similar provisions could apply in respect of the loss of critical other contracts to which a party to the sales contract is party. This could apply, for example, to a supply contract which is intended to supply gas for sale under a sales contract or to end-user resale contracts in respect of the buyer © 2023 Thomson Reuters.

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Events of Termination, UKBC-GASLNGS 493298821 (2023)

under a sales contract. The rationale for termination of the sales contract in these circumstances is simply that without the regulatory, economic or logistical support which these various other consents or contracts provide then the sales contract is unsustainable. Where the sales contract contains a right of termination in favour of a party in respect of such loss of a consent or another contract the principle which should be preserved in the sales contract is one whereby such a right of termination can only be exercised where the loss of the consent or other contract which is complained of has not been caused by the act or omission of the prospectively terminating party. This will preclude that terminating party from engineering the loss of a consent or the termination of any other contract as a means of bringing the sales contract to an end. 5 (viii) Termination for a change of control. A party might have the right to terminate the sales contract where the other party has undergone a change of control (depending on how that term is defined and what the consequences of such an act are expressed to be (38-008)). (ix) Termination upon notice. It is always open to the parties to provide an express right to terminate the contract within the terms of the contract itself. Such a termination right may be exercisable by one party where the other party has committed a defined breach of contract, or on the occurrence of any event other than a breach of contract, or simply at any time at the option of the party holding the termination right. Under English law, if a sales contract contains no express provisions about the length of notice which must be given to terminate then a term is implied that reasonable notice will be required. This begs the question of what is reasonable in each case, and so it is always preferable to specify a fixed notice period in the sales contract. 39-006 Expressly agreed contractual termination rights will obviate the risk of reliance on the uncertainties of termination rights which are provided by applicable legal doctrines. This list of termination events could exclude certain events which might otherwise have given rise to a right to claim a repudiatory breach, and equally may admit a certain event as a ground for termination which may not, of itself, have constituted a repudiatory breach. Where a sales contract is entered into by multiple persons who together constitute the seller or the buyer (9-004, 9-006) the sales contract will need to manage carefully the requirement that an act or omission by one of those persons which triggers a termination right in favour of the other party is (wherever possible) applied solely in respect of the sales contract as it relates to that person and not to the entirety of the group of persons, such that collective responsibility is not imposed between the group of persons for the situation of one person. On the other hand, such a situation could also entail the creation in the sales contract of a mechanism by which the group of persons have a right (or even an obligation) to make good between themselves the act or omission which would otherwise give rise to a potential termination right.

Footnotes 4

5

See, in the UK, the Corporate Insolvency and Governance Act 2020, which restricts the ability of a supplier of goods and services to terminate a contract with a customer because of the customer’s insolvency. This Act, which was intended to protect customers struggling to cope with the economic consequences of the Covid-19 pandemic, applies to all companies (and is not limited to companies incorporated in England and Wales) and is not confined to contracts governed by English law. Whether this Act was really intended to apply to sophisticated gas project contracts negotiated between well-advised parties is debatable. See Aktieselskabet Dampskibsselskabet Svendborg v Mobil North Sea Ltd [2001] 2 All ER (Comm) 553; [2001] 2 Lloyd’s Rep. 127 for an illustration of this point.

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Post Termination Consequences, UKBC-GASLNGS 493298817 (2023)

Post Termination Consequences Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 39 - Termination Post Termination Consequences 39-007 Upon termination of the sales contract several issues will arise for consideration: (i) Continuing covenants and obligations. A sales contract will typically provide that, notwithstanding the termination of the sales contract, certain of the provisions will continue to bind the parties. This would apply, for example, to the obligations of confidentiality (41-003) which will usually be expressed to remain in force for a period of time after the end of the sales contract and which should not be disregarded simply because the sales contract has come to an end. A sales contract should also provide that the fact of termination is without prejudice to any rights or liabilities which may have accrued for or against a party prior to the date of, or as result of, termination, but subject to the continuing limitation of liabilities of the parties under the sales contract in respect of those accrued rights or liabilities. This would apply, for example, to any final accounting under the sales contract which would apply after the sales contract has expired. (ii) Extension of the basic term. Consideration has previously been given to provision in a sales contract for an extension of the basic term in order to enable the buyer to recover unredeemed shortfall price discount entitlements (19-008) and unrecovered make up (17-002). The sales contract may provide that these rights of extension are not exercisable by the buyer where the sales contract has been terminated because of a prolonged failure or inability of the seller to deliver gas, since the right is likely to be meaningless in practice (although some other form of remedy could apply), nor are they exercisable where the sales contract has been terminated because of the buyer’s default, since the buyer should not then be rewarded with the application of these rights. (iii) Damages and compensation. A sales contract should address whether, in circumstances where the contract is terminated by one party before the end of the anticipated term of the contract because of an unremedied default by the other party (see above), it is appropriate for the terminating party to be able to claim monetary damages for the loss of the expected bargain which it has suffered because of the early termination of the sales contract. The starting point under English law for quantifying the prospective recovery of damages for breach of contract is what is known as “restorative damages”. This is a principle whereby damages for a breach of contract are paid to a claimant with the intention of restoring the claimant to the position which it would have enjoyed if the contract had run its full term and had been fully performed. 6 For the seller this would mean recovering an accelerated receipt of the buyer’s payments which were due over the lifetime of the sales contract, but with credit in the calculation of the due amount being given to the buyer for whatever expenses the seller would have incurred in meeting its commitments under the contract to produce and deliver gas in response to the buyer’s requirements. Correspondingly, for the buyer this would mean recovering whatever the buyer would have made from the receipt of gas from the seller, but with credit in that calculation being given to the seller for what the buyer would have paid for the gas and for any other prospective expenses in receiving and selling that gas. Quantifying a damages claim for the seller or for the buyer in these circumstances could be a challenge, particularly where the sales contract applies a floating price construction, which will make the prediction of future economic circumstances difficult to achieve. The presence in the contract of an exclusion of

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Post Termination Consequences, UKBC-GASLNGS 493298817 (2023)

liability for consequential losses, of limitation of liability provisions relating to ongoing contractual performance or of a cap on the overall liability of a party, will each also play a significant role in shaping the measure of the damages which might be payable. Furthermore, English law does not provide an unobstructed path to the recovery of damages for prospective losses, following a line of reasoning to the effect that an injured party which elects to terminate a contract cannot sue for any sums which were properly only due under the contract after the date of termination. 7 To address this difficulty it might be preferable for the injured party to instead keep the sales contract alive and thereafter to bring a series of ongoing actions for recovery of amounts as they fall due. This might be neither attractive nor feasible. As a reaction to the various difficulties of quantifying an actual damages claim which are outlined above, the sales contract could instead define a liquidated damage (36-009), to apply in the circumstances of the termination of the sales contract by one party because of an unremedied contractual default by the other party, and not to apply, for example, in favour of a party where that party has elected to terminate the sales contract for its own convenience, or where the sales contract has been terminated against that party for its own default. Such a provision 8 would establish the gross future value of the sales contract to the claiming party and might also apply an appropriate discount factor to the gross value in order to recognise the true net value of the sales contract to the claiming party. Explaining this economic logic in the sales contract would also help to justify the liquidated damage provision and better ensure its efficacy under English law. The liquidated damages formulation hinges upon the principle that termination of the sales contract has been effected as a reaction to an unremedied breach of the sales contract for which damages are due. Consequently the right of a party to claim such damages could be disapplied where a party has exercised a right to terminate the sales contract without reference to a breach of contract by the other party (e.g. where a party has exercised an economic right of termination or has exercised a right to terminate because of prolonged force majeure—see above), since there is no ostensible breach of the sales contract by the other party which would properly allow the damages to be claimed. But the same principle of monetary recovery by a party for the loss of the anticipated bargain of the sales contract could still be effected by a contractually-agreed commitment of the parties to pay an agreed amount as compensation (structured, for example, as an expressed termination fee) where the sales contract comes to an end in certain circumstances. Where, for example, a party has exercised its right to terminate the sales contract because of prolonged force majeure affecting the other party (see above) then the sales contract could require the payment of an agreed termination fee according to a formula which is specified in the sales contract (and which could take much the same form as the liquidated damage formulation suggested above). The termination fee could also apply so that it is payable by a party which has exercised an economic right of termination or has exercised the right to terminate for its own convenience, essentially as the cost of exercising the option to terminate the sales contract. The amount of liquidated damages would not necessarily be the same between the seller and the buyer. The liquidated damages calculation would have to reflect each party’s commercial expectations in respect of the full performance of the sales contract, which will be different. A seller in particular would expect to see any limitation of liability which it enjoys for a seller’s delivery failure, expressed in proportion to the liability which a buyer has for a failure to take delivery of gas, to follow through into the calculation of the liquidated damage. Three other points are relevant to the issues described above in respect of the liquidated damage and the termination fee: (a) Collateral support. A claim for a liquidated damage or for a termination fee has particular value where there is collateral support in place (15-002) which could apply to support the prospective liability of a party to make payment. (b) Termination for insolvency. If a sales contract has been terminated by a party because of the other party’s insolvency (see above) the terminating party might still wish to make a claim for payment. Although there could be a diminished prospect of recovery from an insolvent counter-party, the terminating party would have a significant claim in the insolvency (to rank pari passu with other unsecured creditors). (c) Lenders’ requirements. Where the costs of developing a gas project have been met by third party lenders (5-013), and the only real security for the lenders for the repayment of their advances is the prospect of payment under the sales contract, they could be

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Post Termination Consequences, UKBC-GASLNGS 493298817 (2023)

interested to see the presence of a provision for the payment of such a liquidated damage or termination fee (which, of course, they would then seek to sequester).

Footnotes 6 7 8

Robinson v Harman 154 E.R. 363; (1848) 1 Ex. 850. Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827; [1980] 2 W.L.R. 283 HL. See P-29.

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Introduction, UKBC-GASLNGS 493298822 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Introduction 40-001 During the lifetime of a sales contract there will invariably be some matters between the parties which will come to be disputed. A sales contract should provide for how these disputes are to be addressed, such that disputes are dealt with quickly and effectively, with finality and certainty of outcome, and as far as possible do not impede the continuing operability of the sales contract. The importance of this area is often overlooked in preparing sales contracts, typically with whatever dispute resolution provisions from the most recent analogous contract which was entered into by either of the parties being applied again, often with little or no attention to detail. It is only when a dispute arises that these provisions come to be properly considered and by then it will be too late to discover that they might not be ideally suited to the commercial circumstances surrounding a particular dispute. End of Document

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The Prospects for a Dispute, UKBC-GASLNGS 493298825 (2023)

The Prospects for a Dispute Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution The Prospects for a Dispute 40-002 Disputes might arise, for example, between the parties to the sales contract in respect of any of the following matters: (i) The performance of obligations. Whether a party has properly performed certain covenants or obligations as required by the sales contract (such as any facilities obligations (23-002), measurement obligations (22-002) or maintenance obligations (24-002)). (ii) The application of force majeure. Whether an event which has caused a party to fail in the performance of its obligations should be treated as force majeure (35-001) or whether a liability prescribed by the sales contract should apply to that failure. (iii) Statements and quantities. Whether statements or invoices (20-002) are accurate and whether quantities of gas have been properly classified. (iv) The exercise of rights. Whether a party has properly exercised any rights which it might have under the sales contract (such as in respect of any seller’s reservations (11-013) or interruption (11-014) and whether a seller’s delivery failure (19-002) or an off-specification gas event (21-008) has arisen. (v) Other. Whether a particular condition precedent has or has not been performed as required (10-005), an alleged breach of any warranty and representation (41-030) and any disputes regarding price reviews (14-001). Whenever a dispute arises, and notwithstanding which method of determining disputes is provided for, the sales contract should oblige the parties to continue to perform their respective covenants and obligations to the greatest possible extent despite the existence of the dispute, in the interests of keeping the overall gas commercialisation project intact. The gas industry, despite being truly global, is relatively close-knit, and so it is also necessary to keep an eye towards preserving much wider relationships. A dispute between the parties to a particular sales contract should not be allowed to contaminate other contracts, interests and relationships. There is a balance to be struck in a sales contract between providing an accessible forum for the prompt and effective resolution of disputes and making it too easy for the parties to elevate every disagreement to the level of a formal dispute, which might be done in order to frustrate the commercial purpose of the sales contract. In the event of a dispute the parties will not necessarily have the choice of all the dispute resolution options discussed below. A sales contract should be clear and prescriptive as to the intended method of dispute resolution. In Thames Valley Power Ltd v Total Gas & Power Ltd 1 a contract for the supply of natural gas became the subject of a dispute between the parties regarding the validity of a force majeure claim, but first the parties were obliged to determine whether their dispute should be resolved by the appointment of an independent expert or through arbitration in accordance with the terms of the contract (and, in the event, the matter was resolved by the intervention of the English courts).

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The Prospects for a Dispute, UKBC-GASLNGS 493298825 (2023)

A sales contract could also provide for a multi-tiered approach to dispute resolution, where different methods of dispute resolution are required to be applied in sequence (moving from the informal to the formal) between the parties as a means of resolving a dispute. This should not be confused with the concept of asymmetric dispute resolution, which is a one-sided provision whereby a contracting party has the unilateral right to choose which method of dispute resolution should be applied in the event of a particular dispute. 2

Footnotes 1 2

Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm); [2006] 1 Lloyd’s Rep. 441. Asymmetric dispute resolution provisions are not without complication—see Aiteo Eastern E&P Co Ltd v Shell Western Supply and Trading Ltd [2022] EWHC 2912 (Comm).

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Informal and Formal Dialogue, UKBC-GASLNGS 493298829 (2023)

Informal and Formal Dialogue Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Informal and Formal Dialogue 40-003 A sales contract could provide that the parties’ senior management will meet and seek to discuss in good faith the issue in dispute with a view to procuring early and informal resolution but without the imposition of a binding outcome by a third party (often called “amicable settlement”, although the reality of what happens in this process might be anything but). This process usually happens anyway in the early stages of a dispute, and so the parties might query the need for a provision in a sales contract which recites what they might regard as a self-evident requirement. That said, such a provision could be useful in a sales contract with an international dimension where initial, informal negotiation over disputes might not be the cultural norm for some or all of the disputing parties. A provision in the sales contract for the resolution of disputes through informal dialogue will rarely recite too much operational detail about how that mechanism is to be applied, since to do so would be inconsistent with the nature of such a mechanism. A more formal mechanism for dialogue is any sort of procedure which falls under the general heading of alternative dispute resolution (ADR). This is a mediation-based dialogue within a structured process, involving a third party overseer but without an imposed outcome. ADR typically does not preclude further recourse to arbitration or litigation in the event that no settlement is reached between the parties and for this reason is popular. ADR is also generally perceived as being more informal, less expensive and quicker than dispute resolution by arbitration or litigation for example (see below), and because of its nonconfrontational nature there may be a better chance of maintaining commercial relationships during and after determination of the dispute. End of Document

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Expert Determinations, UKBC-GASLNGS 493298823 (2023)

Expert Determinations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Expert Determinations 40-004 A sales contract could provide that the parties will jointly agree and appoint an independent expert (or even a panel of experts) for the determination of certain matters in dispute (e.g. typically relevant to certain pricing issues, invoicing and payment disputes unresolved force majeure claims, gas measurement disputes or other technical disagreements), with provision for an independent third party to decide upon the appointment of the expert for the parties if they are unable to agree upon a suitable candidate. The reference to an expert of disputes under a sales contract arising in connection with invoicing and payment (20-002) will also pick up disputes relating to quantities such as alleged seller’s delivery failures, undertake gas and overtake gas or make up rights, since these quantities will be recited in the statement which the seller prepares and which the buyer disputes. Consequently the sales contract might, in the aforementioned provisions, not make an express reference to dispute resolution by reference to an expert, relying instead on the expert reference in the invoicing and payment provisions to address potential disputes in these areas. The expert provisions in the sales contract will typically recite matters such as the mechanics for the identification, selection and appointment of the expert, the requirement for true independence and impartiality on the part of the expert (e.g. through not being a previous or current employee of, or contractor to, the parties and through not having a significant shareholding or other financial or fiduciary interest in any of the parties), the timetable and the mechanics for the expert’s determination and provision that the determination of the expert will be final and binding on the parties (or, alternatively, the circumstances in which the expert’s determination can be appealed to a competent court). 40-005 The expert provisions should also offer some guidance to the expert as to how the costs of the expert’s determination are to be borne between the parties. The usual options are that such costs are borne equally between the parties, are borne by the party which is ultimately unsuccessful in the dispute or are borne in such proportions as the expert shall determine. Expert references allow the selection of a suitably-qualified person for certain technical or operational disputes and can be quicker, cheaper and more flexible than arbitration or litigation, and without being quite so adversarial. However, an expert reference might not be suited to resolving a wide and/or particularly complex project dispute. For the determination of disputes relating to issues in respect of which the appointment of an expert is not appropriate the parties might prefer recourse to arbitration or litigation. The determination of an expert is not directly enforceable between the parties, in the same way that an arbitral award or the decision of a court is. A party could choose to ignore the expert’s determination, which would then lead to another form of dispute resolution in respect of the relevant matter. For this reason an expert determination might not be suitable for every dispute. End of Document

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Arbitration, UKBC-GASLNGS 493298826 (2023)

Arbitration Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Arbitration 40-006 Arbitration is a procedure whereby the legal rights and obligations of the parties are determined within private proceedings which effectively reflect the role of a civil court of law. Where an arbitration takes place in England and Wales the Arbitration Act 1996 will apply, as will English law as the procedural law to govern the arbitration unless an alternative choice is agreed between the parties. An agreement between the parties to the sales contract to resolve disputes by recourse to arbitration will typically address the nature of the disputes to be referred to arbitration (which may be all disputes under the sales contract except for those specifically identified to be otherwise resolved, such as by reference to an expert), the mandate of the arbitral tribunal to act, the applicable procedural law of the arbitration, the venue and the language of the arbitration, the number of arbitrators and the procedure for their appointment and the selection of an appropriate adjudicatory body if the parties are unable to agree on any aspect of the agreement to arbitrate. A failure of the terms of an agreement to arbitrate to be clear and comprehensive could lead to a danger that the agreement to arbitrate could be declared void for uncertainty, or at least that the arbitral tribunal will not have clear jurisdiction over a particular dispute. The agreement to arbitrate might also guide the arbitral tribunal as to the outcome. Pendulum arbitration, sometimes also called “baseball arbitration”, is a type of arbitration in which the arbitral tribunal is obliged to make its award based on choosing completely in favour of one of the parties’ proposals on the disputed issue, and cannot seek to split the difference between the parties by creating an award of its own volition. The agreement to arbitrate could also require that the arbitrators do not make their decision ex aequo et bono (that is, according to what the arbitrators think is fair and just, rather than according to the letter of the law). English law has confirmed the view that reference in a commercial contract to the principle that reference under the arbitration provisions of “any disputes arising under this contract” would govern disputes concerning the very validity of the contract as well as disputes concerning the performance of that contract if it was clear that the contracting parties had intended such a wide application of the defined dispute resolution mechanism. 3 40-007 There is a distinction to be recognised between institutional arbitrations (sometimes also called “administered arbitrations”), wherein the arbitration will be conducted under the auspices of and in accordance with the established procedural rules of a recognised arbitral institution, and ad hoc arbitrations, wherein the arbitration will be governed by whichever procedural rules the parties wish to select (which might even be their own). In an ad hoc arbitration the parties manage themselves essentially. Institutional arbitrations and procedural rules which are popularly relied upon are those promulgated by the International Chamber of Commerce (ICC)’s International Court of Arbitration, the London Court of International Arbitration (LCIA), the American Arbitration Association (AAA) (and its international arm the International Centre for Dispute Resolution (ICDR)), the Stockholm Chamber of Commerce (SCC) the Dubai International Arbitration Centre (DIAC), the Singapore International Arbitration Centre (SIAC) or the China International Economic & Trade Arbitration Commission (CIETAC). The UNCITRAL rules, promoted by the United Nations’ Commission on International Trade Law, are not supported by a corresponding institution and consequently the UNCITRAL rules are often used in ad hoc arbitrations.

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Arbitration, UKBC-GASLNGS 493298826 (2023)

Footnotes 3

Fiona Trust Holdings Corp v Privalov [2007] EWHC 39 (Comm).

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Litigation, UKBC-GASLNGS 493298828 (2023)

Litigation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Litigation 40-008 Rather than seeking recourse to an independent expert or an arbitrator, a sales contract might simply prescribe that any disputes between the parties are to be settled in a competent court. This could be something of a sledgehammer to crack a nut, however, in the case of relatively minor or technical disputes, for which recourse to an independent expert would be preferable, and recourse to arbitration might be preferred to litigation for the reasons set out below. Where a sales contract provides for the determination of disputes through litigation there is typically a detailed procedure provided within the jurisdictional rules of the court in which the dispute will be heard which will provide the necessary administrative framework, and so the sales contract should not need to repeat the procedural principles which would otherwise apply. It is also not incompatible with most sets of arbitral rules that a party will still have the right to petition the court for protective relief (such as an injunction) prior to or during the conduct of an arbitration in order to protect its position where necessary. End of Document

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Arbitration or Litigation?, UKBC-GASLNGS 493298827 (2023)

Arbitration or Litigation? Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Arbitration or Litigation? 40-009 The factors which are typically considered by the parties when deciding between arbitration or litigation as a means of dispute resolution are as follows: (i) Speed of process and flexibility. Disputes will generally be determined more quickly by arbitration than by litigation, and arbitration typically demonstrates greater flexibility (e.g. through informal resolution of issues by correspondence), whilst litigation will be subject to court lists, over which the parties have no control, and a relatively rigid and time-consuming procedural regime. (ii) Neutrality. Where the parties to a sales contract are from different jurisdictions it may be that each party is unwilling to submit to the jurisdiction of the national courts of the other party in the event of a dispute. Arbitration offers neutrality in the choices of venue, procedural rules and the composition of the arbitral tribunal. (iii) Confidentiality. Litigation is typically conducted in public and proceedings and judgments will be matters of public record. The parties to a sales contract might therefore prefer recourse to arbitration, where most institutional procedural rules provide that arbitral proceedings and awards are to be kept confidential (except that an arbitral award may become published publicly if enforcement through registration becomes necessary). Neither does the obligation of disclosure (e.g. of documents and correspondence) apply automatically to arbitration, which could be advantageous. (iv) Cost. Since an arbitration is typically speedier and more flexible than litigation the costs of an arbitration could be lower than the comparable costs of litigation. This does not mean, however, that the costs of an arbitration will be insignificant, since it will still be necessary to incur the costs of the actual arbitral hearing (including the costs of the venue) and of remunerating the arbitrators and also any costs associated with any retained lawyers. The cost of an arbitration will also be determined by the number of appointed arbitrators. A reduced number of arbitrators might be more appropriate to a relatively low value dispute. (v) Expertise. In comparison with the appointment of a judge in litigation, the parties to an arbitration can select an arbitrator or an arbitral tribunal with particular technical or commercial expertise in the subject matter of the dispute. (vi) Finality. In contrast to a judgment at first instance in litigation which (subject to certain limitations) can generally be appealed, the parties could agree that an award made by the arbitral tribunal will be final and binding. It might be possible, however, for a party to apply to a court for relief against an arbitral award on the grounds that the arbitral tribunal had no substantive

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Arbitration or Litigation?, UKBC-GASLNGS 493298827 (2023)

jurisdiction over the dispute in question or where serious irregularity affected the arbitral tribunal, the arbitral proceedings or the arbitral award. Furthermore, an appeal might be possible to the courts on a question of law. (vii) Enforceability. There are several international conventions governing the mutual recognition and enforcement of arbitral awards made in a foreign country, the most notable of which is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under the New York Convention arbitral awards should be recognised and enforceable in all countries which have acceded to the Convention, although as a practical matter local enforcement can present difficulties in some jurisdictions. Court judgments obtained in one country can sometimes be harder to enforce abroad. (viii) Precedent value. The creation of a legally binding, publicly recorded precedent could be something which a party is keen to avoid. For the losing party in a dispute this is understandable, since one loss could lead to another loss later on the same factual circumstances, but even a winning party could be reluctant to see the establishment of a particular precedent because it might later wish to argue against that position. A judgment in court gives the basis for a precedent, whereas a private arbitral finding does not. End of Document

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Consolidation of Disputes, UKBC-GASLNGS 493298830 (2023)

Consolidation of Disputes Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Consolidation of Disputes 40-010 There may be issues which are in dispute between the buyer and the seller under a sales contract and between the shipper and the transporter under a GTA (or between the charterer and the shipowner under a charter party) as appropriate. An example of such an overlapping dispute would be where the seller under the GSA is liable for the delivery of off-specification gas to the buyer at the delivery point and where the seller, in its capacity as the shipper under a GTA, seeks to make the transporter liable for that off-specification gas event. Similar principles would apply to an off-specification LNG event under the SPA where the shipowner may have some liability under the terms of the charter party. In respect of pipeline gas deliveries there might also be similar disputes between the transporter and several of its shippers, which might require the consolidation of disputes across several GTAs. Where there are matters in dispute which are substantially common between a number of related project contracts then those contracts might provide for the consolidation of such overlapping disputes in order that they are addressed more effectively. In large, multi-faceted energy projects there could also be an overall umbrella agreement which is entered into by all the various parties to the project and providing for the consolidation of related disputes within a single dispute resolution exercise. End of Document

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Dispute Resolution under Wider Provision, UKBC-GASLNGS 493298824 (2023)

Dispute Resolution under Wider Provision Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 40 - Dispute Resolution Dispute Resolution under Wider Provision 40-011

The foregoing sections of this chapter presume that any dispute which arises between the parties to a sales contract will be dealt with essentially as a private matter in accordance with whatever dispute resolution mechanism exists in the sales contract. It may be that certain instruments exist in relation to a wider gas commercialisation project which could additionally allow a dispute to be resolved as a matter of public international law, depending of course on the nature of the dispute—the dispute resolution mechanisms which are described below are more suited to the resolution of disputes which go to the very foundations of any gas project, rather than to particular technical, commercial or operational disputes. At the level of the investor and the state there might be a host government agreement (HGA) in existence. This is a specific agreement between a foreign investor and a host state governing the rights and obligations of both parties concerning the development and operation of a particular project by the investor. The HGA sets out the obligations of the host state concerning the project and might provide a mechanism for the resolution of disputes. The HGA is often required by foreign investors in countries where the investor’s rights are not otherwise protected by any form of state-to-state investment protection initiative.

40-012 At the state-to-state level several different sorts of instrument might exist. There might be in existence a bilateral investment treaty (BIT), which is entered into between two states and which is intended to establish conditions for the protection of private investments (which could include investment into gas projects). Most BITs grant to such investments a number of guarantees, including fair and equitable treatment and protection from expropriation, and also provide a dispute resolution mechanism, whereby an investor whose rights under the BIT have been violated could have recourse to international arbitration in order to settle a claim against the host state. There might also be an inter-governmental agreement (IGA) in existence. This is a specific agreement between states governing the rights and obligations of both parties concerning the development and operation of a particular project. The IGA might provide a mechanism for the resolution of disputes. An IGA is essentially a state-to-state version of an HGA. It might also be possible for a party to make a claim under a multilateral investment treaty (MIT). The principal MIT to note is the Energy Charter Treaty, which came into effect in April 1998. The fundamental aim of the Energy Charter Treaty is to establish a series of rules intended to promote freedom of transit of energy amongst all participants, with a particular focus on energy sector investment protection, the promotion of non-discriminatory trading conditions and reliable cross-border energy transit flows (including through pipelines and by other means of transportation). The Treaty also provides for the resolution of disputes between participating states and (in the case of investments) between investors and host states. The Treaty contains a comprehensive set of provisions for binding dispute settlement, including a procedure for arbitration between states regarding the interpretation or application of the Treaty and between investors and states regarding alleged breaches of the Treaty’s investment provisions, and also a conciliation procedure for transit disputes. Where a gas commercialisation project benefits from a stabilisation clause then, depending upon the nature of the dispute between the parties, the dispute might also be made subject to whatever dispute resolution provisions the stabilisation clause provides for. End of Document

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Introduction, UKBC-GASLNGS 493298839 (2023)

Introduction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Introduction 41-001 A sales contract will be incomplete without the inclusion of the suite of relatively standard provisions which typically make up a fully functioning commercial contract. These provisions are the boilerplate which is found generally in all contracts, although some modifications will be required in order to reflect the particular nature of the sales contract. End of Document

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Anti-bribery and Corruption, UKBC-GASLNGS 493298847 (2023)

Anti-bribery and Corruption Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Anti-bribery and Corruption 41-002 Certain key legislative provisions (such as the US’s Foreign Corrupt Practices Act 1977 and the UK’s Bribery Act 2010) could apply to the parties and to their relationship in the sales contract. These anti-bribery and corruption (ABC) provisions will prohibit certain corrupt practices and will apply criminal sanctions for a breach. ABC provisions could be reflected in the following aspects of a sales contract: (i) Warranty, representation and covenant. Under a sales contract the seller could be required to warrant and represent (41-030) to the buyer that its gas production activities have been carried out in accordance with the prescribed ABC standards, and to covenant that its activities will be so carried out. A breach of such a warranty and representation (or covenant) could lead to a claim for monetary damages, or it could be of such fundamental importance to a buyer that it could be akin to a breach of a warranty and representation in respect of good title. (ii) Indemnity. A party which is exposed to loss or liability by a breach of the prescribed ABC standards in the sales contract by the other party could require to be fully indemnified by that other party. Such an indemnity would address the economic exposure of the aggrieved party, but could be less effective as a means of remediating the wider reputational damage, and the loss of prospective opportunities, which the aggrieved party has suffered. (iii) Audit rights. A party could require the right to audit the performance of the other party’s performance in respect of the sales contract, to ensure that the contracting activities have been carried out in accordance with the prescribed ABC standards. This is particularly so in light of the potential limitations of an indemnity right (see above), on the basis that prevention is better than cure. (iv) Suspension and termination. A party could have a right to suspend or even to terminate a sales contract in the event of the other party’s remedied failure to perform the contract in accordance with the prescribed ABC standards. End of Document

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Confidentiality and Announcements, UKBC-GASLNGS 493298845 (2023)

Confidentiality and Announcements Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Confidentiality and Announcements 41-003 A sales contract will contain provisions obliging the parties to keep confidential the contents of the sales contract (and any other aspects of the gas sales or transportation relationship—possibly even the actual existence of the arrangements in some circumstances) which are not otherwise legitimately in the public domain. This obligation of confidentiality will subsist for the duration of the sales contract, and possibly also for a period after the expiry or earlier termination of the sales contract. These confidentiality provisions have a real value. Keeping confidential critical commercial information from the sales contract (such as the contract price, the extent of take and pay or take or pay commitments, gas quantities and agreed levels of flexibility and liabilities for breach) will protect a party from potentially having this information used against that party when it negotiates the terms of a subsequent transaction for the sale and purchase or transportation of gas. The usual formulation of the confidentiality provision is that a party wishing to disclose information relating to the sales contract must obtain the prior consent of the other party (such consent not to be unreasonably withheld or delayed) before that party can disclose such information to another person. It may also be a requirement of the consenting party that the person to whom disclosure is made will enter into a separate obligation of confidentiality with the disclosing party, or even directly with the consenting party. 41-004 There is usually a limited set of circumstances in which a party can make a disclosure of information without the prior consent of the other party, to the extent that disclosure is required for the proper performance of the sales contract. This would (for example) include disclosures required by applicable law, judicial process or the rules of a recognised stock exchange, disclosures to persons necessary to facilitate the commercial intent of the sales contract (e.g. insurers, employees, coventurers, affiliates, professional advisers, state agencies and related third party providers) and disclosures to bona fide third party lenders or prospective transferees of interests. These permitted disclosures could (wherever possible) be subject to the person to whom disclosure is made also undertaking a separate obligation of confidentiality. Where a sales contract contains a right of a party to audit various allocations then the confidentiality provisions should also recognise the obligation of the disclosing party to disclose such information to parties to other contracts having the benefit of the same right as part of such a mechanism. 41-005 If the buyer plans to re-sell its purchased gas quantities to a third party as a buyer on a back-to-back basis with the original sales contract, or if the buyer plans to exercise a diversion right in respect of LNG which it has bought to sell LNG to another buyer (7-021), then in either of these cases the intended re-sale or diversion buyer could require to see the terms of the original sales contract (although it is also debatable whether such a right to disclosure should really be necessary, given that the terms of the intended re-sale or diversion could be required to stand on their own feet). Whether the original seller would be happy to allow disclosure of the terms of the original sales contract in these circumstances could be a matter for negotiation. Where a shipper plans to sub-let its reserved capacity in a pipeline (28-003) the intended sub-shipper could also require disclosure of the terms of the GTA. The reality of how the terms of a sales contract could be used by a party for portfolio optimisation purposes, albeit within the confines of an agreed confidentiality provision, could also be identified within the terms of the sales contract. 1

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Confidentiality and Announcements, UKBC-GASLNGS 493298845 (2023)

41-006 As part of the confidentiality regime the sales contract could also restrict the making of public announcements by a party concerning the subject matter of the sales contract, usually with some allowance for announcements which are required in accordance with the rules of a recognised stock exchange or by applicable law. This could include the recognition of a party’s obligation to file a redacted version of the sales contract with a stock exchange, where the redacted version of the sales contract could thereafter be available for public scrutiny.

Footnotes 1

See P-30.

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Consents and Approvals, UKBC-GASLNGS 493298837 (2023)

Consents and Approvals Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Consents and Approvals 41-007 To bring a gas commercialisation project into existence there will typically be a number of consents and approvals which are required from various agencies. The usual formulation in a sales contract is that the seller will secure all the consents and approvals which are required upstream of the delivery point and the buyer will do the same downstream of the delivery point. Certain critical consents and approvals to be obtained could also be the subject of a condition precedent (10-005) to the effectiveness of a sales contract. In a cross-border gas sale where the delivery point is within the buyer’s territory the seller might suggest that it is more appropriate for the buyer to secure the consents and approvals which are upstream of the delivery point but within the buyer’s territory, on the assumption that the buyer should be better placed to get those consents and approvals. Where this is agreed the seller could also contend that it should be relieved from any liability for a breach of its obligations under the sales contract to the extent that such a breach was caused by a failure of the buyer to obtain a consent or approval which the buyer was responsible for getting and which has prevented the seller from performing its obligations. Because of this exposure the buyer may require the original formulation of an absolute obligation on the part of the seller to secure all of the necessary consents and approvals upstream of the delivery point. End of Document

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Entire Agreement, Amendment and Severance, UKBC-GASLNGS 493298842 (2023)

Entire Agreement, Amendment and Severance Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Entire Agreement, Amendment and Severance 41-008 A sales contract usually contains a provision to the effect that it represents the entire agreement between the parties in relation to the particular gas sales arrangement, and that it supersedes any prior agreements concerning the same subject matter. This is particularly appropriate where the parties have previously executed some form of memorandum of understanding as a precursor to the sales contract (5-006). Upon execution of the sales contract the memorandum of understanding should cease to have any legal effect—this could be provided for in the sales contract and also in the memorandum. The purpose of an entire agreement provision is two-fold: to ensure that all of the rights, interests, covenants and obligations between the parties are contained in a single document, such that all pre-contract accords and representations are excluded; and to reduce the possibility of the later introduction of external evidence which might be argued to vary the terms of a sales contract after it has become effective. Where the parties have also, as part of an overall gas commercialisation project, procured collateral support (15-001), executed a project development agreement (23-003) or separately adhered to pipeline system rules (25-023) or loading port or unloading port conditions of use (33-004) as part of the project then the entire agreement provision in the sales contract needs to reflect these other contracts (as appropriate), since the sales contract will not in actual fact be the exclusive statement of the parties’ commercial relationship. 41-009 A sales contract will usually recite that the sales contract, once it has been executed between the parties, cannot be amended other than by a further agreement in writing between the parties. Any pipeline system rules may have their own rules as to amendment and because amendments to the pipeline system rules could necessitate reciprocal changes to the terms of a GSA then the GSA might include a mechanism for the automatic implication of such changes, without the express consent of the parties to the GSA. A similar principle could apply in respect of conditions of use for LNG loading and unloading ports in relation to an SPA (33-004). 41-010 A further exception to the principle of non-amendment without the consent of the parties would be where a particular provision is found by a competent count or is declared by law to be invalid. In this case the invalid provision could be deemed to be severed from the body of the sales contract (with the remaining provisions of the sales contract left intact) and thereafter the parties could be obliged to agree a suitable replacement provision. Such a severance provision is intended to ensure the survival and the continuing operability of the sales contract despite the severance of the invalid provision. Whether this will work as intended in practice will depend on the criticality of the severed provision and whether the invalidity might be such as to render the sales contract entirely unperformable. End of Document

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Environmental, social, governance, UKBC-GASLNGS 534049319 (2023)

Environmental, social, governance Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Environmental, social, governance 41-011

“Environmental, social, governance” (ESG) is a collective term for various social ordinances which a person could require that its participation in a gas commercialisation project will be carried out in accordance with. These ordinances could be internal policies and procedures which have been developed by that person, and they could also be externally published standards. The prescribed ESG standards could also be relevant to the definition of responsibly sourced gas (8-007). ESG provisions could be reflected in the following aspects of a sales contract: (i) Warranty, representation and covenant. Under a sales contract the seller could be required to warrant and represent (41-030) to the buyer that its gas production activities have been carried out in accordance with the prescribed ESG standards, and to covenant that its activities will be so carried out. A breach of such a warranty and representation (or covenant) could lead to a claim for monetary damages, or it could be of such fundamental importance to a buyer that it could be akin to a breach of a warranty and representation in respect of good title. (ii) Indemnity. A party which is exposed to loss or liability by a breach of the prescribed ESG standards in the sales contract by the other party could require to be fully indemnified by that other party. Such an indemnity would address the economic exposure of the aggrieved party, but could be less effective as a means of remediating the wider reputational damage, and the loss of prospective opportunities, which the aggrieved party has suffered. (iii) Audit rights. A party could require the right to audit the performance of the other party’s performance in respect of the sales contract, to ensure that the contracting activities have been carried out in accordance with the prescribed ESG standards. This is particularly so in light of the potential limitations of an indemnity right (see above), on the basis that prevention is better than cure. (iv) Pricing. The price which the buyer pays for gas under a sales contract could be indexed to reflect the extent of the seller’s compliance with the prescribed ESG standards. A price premium might apply to gas volumes which comply with the prescribed ESG standards, and/or a relative price discount could apply in respect of the proven failure of the seller to so comply (although the buyer could take the view that compliance with ESG standards is an absolute requirement as a principle good governance, and is not a matter which is appropriate to reflect as a pricing adjustment). (v) Suspension and termination. A party could have a right to suspend or even to terminate a sales contract in the event of the other party’s remedied failure to perform the contract in accordance with the prescribed ABC standards.

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Environmental, social, governance, UKBC-GASLNGS 534049319 (2023)

The challenge for any gas commercialisation project is to reconcile and to apply in a consistent manner all of the various ESG provisions which all of the project participants could require compliance with, 2 and also to ensure that the prescribed ESG standards are realistic and achievable in the context of the project contracts.

Footnotes 2

ESG provisions could be applied in the terms of an upstream petroleum granting instrument and also in the terms of a joint operating agreement between the project participants. Each project participant could also have its own preferred ESG standards.

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Form of Execution, UKBC-GASLNGS 493298838 (2023)

Form of Execution Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Form of Execution 41-012 Under English law a sales contract could be signed by the representatives of the parties to signify their acceptance (sometimes called a “simple contract” or a “contract under hand”) or the sales contract could be executed as a deed, subject to compliance with the applicable formalities for the execution of a document as a deed. The principal advantages of executing a sales contract as a deed relate to securing more extensive limitation periods for the bringing of claims in relation to the sales contract and to dispensation with the need to prove the effective passing of consideration for the promises made by the parties in the sales contract. End of Document

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Governing Law and Jurisdiction, UKBC-GASLNGS 493298843 (2023)

Governing Law and Jurisdiction Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Governing Law and Jurisdiction 41-013 A sales contract should state which body of substantive laws will be applied to govern it. The selected governing law will apply to the interpretation of the content and the effects of the sales contract in the event of a dispute. As for the choice of governing law in the sales contract, local law will usually apply to a purely domestic transaction (that is, according to the location of the gas project and/or the nationality of the parties). Where the sales contract has an international flavour then a neutral law may be preferred. Whichever law is selected to apply to the sales contract should recognise and give effect to the legal and contractual principles which are applied in the sales contract. A hybrid formulation for the selection of governing law which sometimes appears is one whereby a local law is selected, with (say) English law to apply as a back-stop in order to address any situation where the local law is unable to address a particular issue; or where international law (which is often not defined) will prevail over a choice of nominated law in the case of a deficiency. The scope for conflict and confusion here is obvious and such hybrid formulations are best avoided. English law or New York law are popular choices of a neutral, impartial governing law because they are particularly suited to interpreting the nuances of contracts drafted in the English language, because outcomes can be predicted with greater certainty in light of the guidance which the substantial bodies of settled case law and statute law possessed by each legal system provides, and because they each recognise doctrines such as separate legal personality, sophisticated security interests, agency appointments and trust arrangements. English law in particular is highly regarded because it is flexible and commercial, and seeks to uphold the freedom of the parties to contract and to behave as they see fit (subject to the consequences of doing so). 41-014 In the unlikely event that there is no express choice of governing law a court which is able to assert jurisdiction over the sales contract could decide which governing law should apply to the sales contract, to be determined in accordance with the conflict of laws principles of the court’s jurisdiction. Notwithstanding that a sales contract might provide for the determination of disputes other than by litigation (40-008) a sales contract should still specify which country’s courts will have jurisdiction over that sales contract. This is so since recourse to court might otherwise be necessary, e.g. for a party to sue for the recovery of a debt, to seek protective relief or to appeal the decision of an expert or an arbitral tribunal where circumstances so permit. A sales contract should also prescribe whether the named court will have exclusive or non-exclusive jurisdiction. In the former case the parties will be obliged to bring any actions in the named court (and the courts of any other jurisdiction should have no standing to entertain such actions where they are aware of the existence of a provision for exclusive jurisdiction); in the latter case a party may bring an action either in the named court or in the courts of any other country potentially having jurisdiction over the sales contract according to their own jurisdictional rules, without first having to bring the action in the named court. End of Document

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Insurance, UKBC-GASLNGS 493298834 (2023)

Insurance Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Insurance 41-015 At the simplest level a sales contract is a contract for the sale of a commodity. The parties might take the view that the sales contract should no more contain detailed provisions regarding an obligation to insure facilities than it should contain a facilities obligation. On the other hand, a sales contract relies for its effective performance on the existence of certain gas production, transportation, reception or consumption facilities and the existence of insurance coverage in respect of the risk of loss of or damage to such facilities and an obligation to apply any insurance recoveries towards the repair or overall reinstatement of those facilities could help in protecting the underlying value of the sales contract. Where there is an insurance provision in a sales contract then such a provision will usually recite that each party will take out and maintain insurance to a specified minimum value with reputable insurers in respect of the risk of loss of or damage to the gas production and/or transportation facilities (for the seller) and in respect of the gas reception or consumption facilities (for the buyer). LNG ships will attract their own particular maritime insurance coverage regime. Any third party lenders (5-013) might additionally be named as co-insureds (see below), since they will also have an interest in securing the insurance proceeds in the event of a claim, and they could well insist on minimum levels of defined insurance cover in respect of various aspects of a gas commercialisation project. A party might also seek to arrange insurance coverage for loss of profits caused by business interruption and against a liability which that party might have to indemnify any other party under the sales contract. A party which bears the risk of loss of or damage to gas may also wish to insure the value of the gas whilst it is in that party’s custody. A party might also wish to procure political risk insurance in respect of its interests in a gas commercialisation project. All of these insurances are party-specific and do not necessarily need to be recited in the sales contract. 41-016 Several features will be common to any programme of insurance placement which is made under a sales contract: (i) The identity of the insurer. Insurance could be placed with a third party insurer or a party might have an affiliated (or captive) insurer which will undertake the insured risks. “Self-insurance” is the term often applied to the situation where a party does not arrange insurance but instead takes the risk of loss or damage onto its balance sheet, which in reality is no insurance at all. (ii) The extent of insurance coverage. A policy of insurance will typically be subject to a monetary component (called a “deductible”or an “excess”), expressed as the first part of the total amount claimed and which will be borne by the insured party rather than the insurer in the event of a claim. (iii) Waiver of subrogation. The insurance obligation should oblige the person arranging a policy of insurance to ensure that the policy should contain a waiver of subrogation rights by the insurers in favour of the parties to the sales contract (and other named persons, where so agreed), such that in the event of a claim being made on that insurance the insurer cannot then step into the insured’s

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Insurance, UKBC-GASLNGS 493298834 (2023)

party’s shoes and proceed to recover its insurance payment from the party which caused the loss or damage by exercising recovery rights which exist under the terms of the sales contract. (iv) Proof of insurance coverage. To underpin the operation of the insurance provisions a sales contract might oblige the party arranging a policy of insurance to prove periodically to the other party that the policy is in force and that the premiums have been paid. There might also be provision for the other party to pay the premiums directly on behalf of the insuring party (and to recover the costs of doing so from the insuring party) where the insuring party fails to do so, in the interests of keeping the policy of insurance in force. (v) The identity of the insured. A party which is insuring its assets or interests will be the principal insured person but additional persons could be named on a policy of insurance as co-insureds (sometimes called “additional loss payees”), such as third party lenders or a party to the extent of its right to be indemnified. Where a sales contract contains an insurance provision there will usually be some debate about whether the insured party will or will not be obliged to apply the insurance proceeds to the repair or reinstatement of its facilities in the event of an incident affecting those facilities which has resulted in an insurance payout (often called the “reinstatement obligation”). If the incident happens when the sales contract is in its relative infancy then there is every likelihood that the insured party would wish to repair or reinstate its facilities in order to continue with the performance of the sales contract and so the insurance proceeds will be applied towards that repair or reinstatement. Where, however, the incident happens towards the end of the lifetime of the sales contract then there is more chance that the insured party would be disinclined to apply the insurance proceeds towards the repair or reinstatement of facilities which may have been approaching the end of their useful economic life anyway. One possible compromise in this situation is that the insured party will only be required to apply the proceeds of insurance towards the repair or reinstatement of facilities if this is consistent with what would be expected of a reasonable and prudent operator (see below). End of Document

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Interpretations, UKBC-GASLNGS 534049318 (2023)

Interpretations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Interpretations 41-017 A sales contract could recite a number of provisions which will apply to its application and interpretation between the parties, including the following: (i) Incorporation of schedules. The schedules to the sales contract (if any) will be deemed to form an equal part of the sales contract, even though the schedules come after the main body of the sales contract. (ii) Management of conflicts. In the event of a conflict between the wording of the main body of the sales contract and the wording of a schedule, the wording in the main body will take precedence. (iii) Use of headings. Headings and sub-headings to clauses in the sales contract appear for ease of reference only and will be deemed not to have substantive meanings in their own right. (iv) Qualified meanings. In the sales contract a singular term will be deemed to include the plural of that term (and vice versa) and the use of a particular gender will be deemed to include all gender forms. (v) References to the sales contract. A reference to the sales contract will be deemed to mean the sales contract as it may over time have been amended, supplemented, re-stated, assigned or novated. (vi) References to regulatory provisions. A reference in the sales contract to a law, regulation, treaty, order or technical standard will be deemed to mean any of those items as they may over time have been amended, supplemented, re-stated or re-enacted. (vii) References to persons. A reference in the sales contract to a party or person will be deemed to include that party or person’s successors or transferees over time. This provision could be limited to permitted successors and transferees in accordance with the conditions of the sales contract. (viii) Wording of inclusion. In the sales contract the terms ‘include’ or ‘including’ will be deemed not to be limited to any express matters which those terms reference.

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Interpretations, UKBC-GASLNGS 534049318 (2023)

(ix) Temporal measurements. References in the sales contract to days, months or years will be determined by reference to the Gregorian calendar. In the computation of time periods the terms ‘from’ and ‘to’ will be deemed to include the reference days to which they relate. The sales contract could however include express references to the meaning of ‘gas days’ (10-015) and the determination of contract time (41-028). (x) References to consent. The requirement in the sales contract that a party will not unreasonably withhold its consent will be deemed to say that the party will also not unreasonably condition or delay the giving of that consent. (xi) References to currency. A reference in the sales contract to a monetary amount which does not specify a particular currency will be deemed to mean a reference to a particular currency. (xii) Contra proferentem. This is a rule of contractual construction which will say that the interpretation of the sales contract should not be applied to the disadvantage of a party just because that party was the author of the sales contract. (xiii) Contract language. The sales contract could declare the language which governs its interpretation, and that notices to be given under the contract must also be given in that language. 41-018 The sales contract will typically say that these interpretation provisions will not apply where the sales contract expressly provides a corresponding particular provision. The sales contract could also say that these interpretation provisions will not apply where the context in which they would be applied could require otherwise. The latter formulation could cause difficulties of interpretation in respect of what that context might be and whether or not it applies. End of Document

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Notices, UKBC-GASLNGS 493298846 (2023)

Notices Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Notices 41-019 A sales contract will contain provisions determining the method of giving and receiving notices between the parties. The sales contract usually also prescribes a separate operational regime for the submission of notices of nominations (18-002), variations to nominations (18-008) and LNG ship scheduling arrangements (33-007, 33-009). The notices provision is intended to ensure that notices are properly served on the appropriate person such that the sales contract is operated efficiently. A failure of a party to comply with the strict requirements of a notices provision might not be excused and a notice served in any other manner could be ineffective. End of Document

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Reasonable and Best Endeavours, UKBC-GASLNGS 493298833 (2023)

Reasonable and Best Endeavours Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Reasonable and Best Endeavours 41-020 Sales contracts typically create absolute, unqualified obligations which the parties are required to perform. However, a party may have difficulty in accepting such an obligation because of some uncertainty regarding its ability to perform the obligation. In order to afford some latitude a contract could expressly qualify an absolute obligation. It is not uncommon to find certain commitments by parties to use their “reasonable endeavours” or “best endeavours” to do something. Such qualified commitments are frequently adopted as a form of compromise in commercial obligations, but often with an imprecise appreciation of the extent of the obligations they create. These qualified commitments create real, enforceable obligations between the parties and should not be regarded as creating merely peripheral undertakings. Lawyers negotiating, or interpreting, contracts containing wording which qualifies what would otherwise be an absolute obligation often have different views regarding the meaning of such qualifying wording, and judicial assistance may not always be forthcoming. The definition of what constitutes reasonable endeavours or best endeavours is not always clear under English law, particularly when judged by reference to how far a party which is subject to such a commitment will be required to go in order to discharge its duty. 41-021 In UBH (Mechanical Services) Ltd v Standard Life Assurance Co 3 it was suggested that in deciding what is, and what is not, reasonable in the fulfilment of a reasonable endeavours obligation the personal economic circumstances of the party subject to the obligation may be taken into account. Critically, it was said, such an obligation would not be regarded as absolute and objective but must be read by reference to the subjective circumstances of the obliged party. 4 This establishes an inclination towards subjectivity in the context of reasonable endeavours, which was reiterated in Phillips Petroleum Co UK Ltd v Enron Europe Ltd. 5 The sellers of gas had contracted to sell gas on a long-term basis to Enron from the J-Block fields in the North Sea, at a price fixed by agreement between the sellers and Enron and dependent upon the obligation of all the parties to use reasonable endeavours to agree a commissioning date by which gas would start to flow. Enron later declined to agree that commissioning date, ostensibly on the grounds that a collapse in comparable market prices for gas would expose it to a substantial loss on the higher price it would be obliged to pay to the sellers under the gas sales contract. That contract offered no guidance as to the meaning of reasonable endeavours for these purposes, nor as to whether a party could take its own financial interests into account in using its reasonable endeavours. The Court of Appeal ruled that Enron was not obliged to disregard the financial effects upon it of complying with the reasonable endeavours obligation, particularly in light of the absence of any specific guiding criteria in the contract as to what would or would not be reasonable in the circumstances, and that the parties were entitled to take into account their own financial position and act in the manner most beneficial to them. Thus, in this case Enron was entitled to do nothing towards agreeing the earlier delivery date because the market price of gas had fallen so far below the agreed price of gas in the contract that Enron would have suffered a substantial economic loss if it had agreed to an earlier delivery date. The court identified the difficulty of drawing the line between what is to be regarded as reasonable or unreasonable in an area where the parties may legitimately have differing views or interests. The obligation to use best endeavours to do something is commonly regarded as imposing a higher degree of commitment than would be entailed by a reasonable endeavours obligation, but it is still not an absolute and unqualified obligation. Rather, the obligation of a party to use its best endeavours could require the obligated party to take those steps which a reasonable and prudent person would have undertaken.

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Reasonable and Best Endeavours, UKBC-GASLNGS 493298833 (2023)

41-022 For completeness it is also worth mentioning a hybrid formulation, wherein a party undertakes to use “all reasonable endeavours” to achieve a particular purpose. It is difficult to apply a clear meaning to this term and the case law is inconsistent. This term has variously been declared to be in a position somewhere between reasonable endeavours and best endeavours, equivalent to an obligation to use best endeavours, 6 and not so equivalent. 7 Additionally, in some sales contracts the term “commercially reasonable endeavours” is used to condition the responsibility of the parties. This phrase could be defined in the sales contract, by reference to the efforts which a person would undertake in similar circumstances but without incurring costs which are greater than those which would ordinarily have been incurred by that person.

Footnotes 3 4 5 6 7

UBH (Mechanical Services) v Standard Life Assurance Co The Times, 13 November 1986. In this case the party obliged to use reasonable endeavours “was entitled to perform a balancing act, placing on one side of the scales the weight of his obligations … and on the other commercial considerations …”. Phillips Petroleum Co (UK) Ltd v Enron (Europe) Ltd [1997] C.L.C. 329. Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm); [2007] 2 All E.R. (Comm) 577, and also Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417; [2012] 1 C.L.C. 605, where it was declared to be “common ground that there is no difference between best and all reasonable endeavours”. CPC Group Ltd v Qatar Diar Real Estate Investment Co [2010] EWHC 1535 (Ch); [2010] C.I.L.L. 2908, where the actual formulation used was “all reasonable but commercially prudent endeavours”.

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Reasonable and Prudent Operation, UKBC-GASLNGS 493298841 (2023)

Reasonable and Prudent Operation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Reasonable and Prudent Operation 41-023 A sales contract might prescribe an objective, defined standard to be met by the parties in the performance of their obligations. The sales contract could impose upon each party a requirement to act in accordance with what is called the “standard of a reasonable prudent operator” (RPO) in the performance of certain specified obligations, such as the maintenance of facilities or the obligation to apply insurance proceeds (see above). The standard of a reasonable and prudent operator will typically be defined in the sales contract, usually as the combination of an objective standard (e.g. the application of the level of skill and ability which might ordinarily be expected from a skilled and experienced operator) and a subjective element (e.g. where the operator is undertaking activities in similar local circumstances and conditions). The standard of a reasonable and prudent operator is sometimes expressed to apply as a general standard for the overall performance of a sales contract rather than as a standard to be applied in specific circumstances. This could cause difficulty when applied to what might be regarded as strict or absolute obligations (e.g. such as the obligation of a party to make payment) and consequently this standard would better be reserved for specific applications only, or qualified to say that an expressly higher standard elsewhere in the sales contract would take precedence. In Scottish Power UK Plc v BP Exploration Company Limited 8 the High Court considered the standards necessary to prove the failure of a seller to act as an RPO in the context of a long-term GSA (including whether the seller’s total failure to carry out a particular act at all would of necessity imply an automatic failure to act as an RPO and whether the seller’s compliance with certain statutory standards could reliably indicate, or alternatively forgive, compliance with an RPO standard), before deciding that on the facts of that particular case the seller had indeed failed to act as an RPO. Additionally, in some sales contracts the term “commercially reasonable endeavour” is used to condition the responsibility of the parties. This phrase could be defined in the sales contract, by reference to the efforts which a person would undertake in similar circumstances but without incurring costs which are greater than those which would ordinarily have been incurred by that person.

Footnotes 8

Scottish Power UK Plc v BP Exploration Co Ltd [2015] EWHC 2658 (Comm); [2016] 1 All E.R. (Comm) 536.

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Rounding, UKBC-GASLNGS 493298836 (2023)

Rounding Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Rounding 41-024 Most sales contracts will entail relatively complicated calculations of gas quantities and monetary amounts, which may be taken to several places after the decimal point. To make these calculations more manageable a sales contract could prescribe a methodology for the rounding of figures in a manner which does not unfairly prejudice any party. The protocol for rounding could be a prescribed numerical formula which is set out in the sales contract or it could be determined by reference to an objective standard (such as ISO 31-0:1992(E)). End of Document

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Sanctions, UKBC-GASLNGS 493298844 (2023)

Sanctions Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Sanctions 41-025 During the lifetime of a sales contract certain international trade sanctions could be imposed upon a country or upon a company (whether individually or by association with a sanctioned country) by another country, regional agency (such as the EU) or international agency (such as the United Nations). These sanctions would prohibit trading with a sanctioned country or company, and a consequence of breaching the sanctions (whether knowingly or unknowingly) could be an exposure of the offending person to civil liabilities and/or criminal sanctions, and also to a lack of enforceability of the relevant transaction. These sanctions could exist at the outset of the sales contract or they could come into force during the lifetime of the sales contract. As a practical matter, whether a particular transaction for the sale of gas would offend certain sanctions should be readily capable of assessment in the case of pipeline gas which is transported through a point to point pipeline (25-002) or where LNG is sold on a tramline trade basis (7-021). The issues become more confused where gas is commingled in a pipeline (27-002) or is transported through a pipeline with multiple users and multiple input and offtake points, or where LNG is sold from a portfolio seller (6-010), is the subject of a diversion (7-021) or a swap (2-019), or has otherwise changed hands through various trades prior to the final point of delivery. A buyer will be concerned to know that it has not bought gas from a sanctioned company or produced from a sanctioned country, and a seller will be concerned to know that it has not sold gas to a sanctioned company or which is delivered into a sanctioned country, in each case for fear of exposure to the consequences of breaching any relevant sanctions. A sales contract could therefore contain the following protections 9 against this risk: (i) Covenant and forgiveness. Each party covenants that on an ongoing basis it will not commit or permit a breach of sanctions through its performance of the sales contract. Each party could also be excused from a need to perform a sales contract where doing so would breach sanctions. (ii) Indemnity. A party which is exposed to loss or liability for a breach of sanctions by the acts or omissions of the other party could be indemnified by that other party. (iii) Force majeure relief. A party which is unable to perform its obligations under a sales contract because of the imposition of sanctions could secure force majeure relief (35-001) for a liability for failure which might otherwise apply, but subject to the relevant conditions of the force majeure regime—critically, in order to provide that a party cannot engineer a sanctions situation in respect of itself in order to evade its contractual commitments. A sales contract could be open to suspension and termination where the imposition of sanctions precludes performance of the sales contract (for a defined period of time, in a manner similar to a right of termination for a prolonged event of force majeure), unless the sanctions event is itself addressed as an event of force majeure.

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Sanctions, UKBC-GASLNGS 493298844 (2023)

Footnotes 9

See P-31.

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Taxation, UKBC-GASLNGS 493298840 (2023)

Taxation Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Taxation 41-026 A sales contract should prescribe the allocation of liability between the parties for the incidence of taxation upon the activities of the parties in connection with the sales contract. The definition of taxes for the purposes of a taxation allocation provision typically includes value added taxes, goods and services taxes and excise and customs duties but should not include corporate or income taxes, which should fall to be borne by the party which has principally incurred them. A typical allocation of taxation liability in respect of a sales contract is that the seller will be liable for all taxes arising in respect of any activity occurring upstream of the delivery point and the buyer will be liable for all taxes arising on any activity occurring downstream of the delivery point. This would, for example, make the seller liable for any value added taxes or goods and services taxes applicable to the sale of gas which is levied in the seller’s country of operations (although this point is often specifically reversed by agreement between the parties so that the seller’s monthly statement (20-002) could recite the contract price and any value added taxes or goods and services tax payable thereon by the buyer) and the buyer liable for any import or excise duties on a cross-border gas sale. Who bears responsibility for taxation liabilities arising at the delivery point will need to be negotiated, and the responsibility allocated accordingly. Additionally, in the context of shipping LNG the seller will usually be liable for taxes imposed by any transit country en route to or away from the unloading port in a DES-based sale and the buyer will assume that responsibility in an FOB-based sale. The allocation of liability for taxation between the parties in a sales contract will typically also be backed up by an indemnity between the parties against any exposure to taxation which a party might suffer in consequence of the intervention of a taxation authority which is at odds with the contractual allocation of taxation liability which has been agreed in the sales contract. The indemnity between the parties could be disapplied in some circumstances. This could be a general disapplication where the party to be indemnified has committed an act of wilful misconduct (as it is defined in the sales contract—36-008) which triggered a taxation liability, or it could be a specific disapplication where the party to be indemnified has established a permanent establishment and has thereby incurred a liability to pay some form or profits or income tax. At the time when the parties enter into the sales contract they will be able to determine the likely incidence of taxation of the activities contemplated by the sales contract because at that time the applicable taxation regime should be known to them. The parties might be concerned, however, as to the possible future impact of changes in the taxation regime, such as changes in tax rates or even the introduction of new taxes. This is the risk of future change in law and regulation. An undue burden which is imposed by such taxation changes might not be relieved by the force majeure regime. Consequently the parties might seek to rely on the application of any relief for a material adverse change (35-018) which might be prescribed by the sales contract or a specific provision which allocates the incidence of such tax changes between the parties. 41-027 A particular issue to consider is how, as between the parties to a sales contract, the incidence of what might broadly be called environmental taxes are to be allocated. It may be, for example, that one of the indices used in an indexed base contract price (13-006) is a price for a particular fuel which is escalated through the imposition by a governmental authority of duties intended to discourage the use of that fuel on environmental grounds. Such an imposition might be treated as a factor which escalates the contract price in the ordinary manner, or the pricing provisions might specifically exclude such an imposition on the grounds that it represents a political rather than an economic price movement. Alternatively such an imposition might be introduced simply as an additional tax on the parties and the provisions of the sales contract dealing with the allocation of taxation liability between the parties might address this risk specifically.

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Taxation, UKBC-GASLNGS 493298840 (2023)

A more recent form of impost which has arisen for consideration is the incidence of the European Union Emission Trading System (EU ETS) costs for shipping and how those costs should be allocated between the seller and the buyer in respect of ship-transported LNG cargoes. Shipowners will tend to pass these costs on to their charterers (34-006). In a DES-based sale the seller is the charterer and the seller will be liable for those costs, unless the seller can pass the costs on to the buyer as an addition to the contract price which represents a cost of doing business (and potentially also as a tax which is imposed in respect of the country in which the unloading port is situated, if it is a destination within the European Union). End of Document

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Time, UKBC-GASLNGS 493298835 (2023)

Time Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Time 41-028 A sales contract should specify which measure of time applies to the chronology which is recited in the sales contract (sometimes called “contract time”), and this will be an essential feature in any international gas sale where the parties might have a choice of times to apply to the performance of the sales contract. A sales contract could also cater for transitions in the contract time, to take account of when the clocks go forwards or backwards in the course of a year, and for the effect of leap years, reflective of the Gregorian calendar. 10

Footnotes 10

See P-32.

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Trade restraints, UKBC-GASLNGS 534049320 (2023)

Trade restraints Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Trade restraints 41-029 LNG production from a particular country could be the subject of certain restrictions which might apply to condition the buyers of that LNG or the markets into which that LNG can be sold, in each case applying a restriction on the sale of LNG to sanctioned persons or places. LNG production from the United States, for example, is typically the subject of Department of Energy (DOE) export restrictions, which prohibit an LNG producer from supplying LNG into a market which does not benefit from a free trade agreement export authorisation. A sales contract could contain provisions whereby the parties acknowledge and agree to comply with all applicable export authorisations, and whereby the buyer gives a series of covenants which relate to the on-sale of the LNG which has been bought in compliance with those authorisations. 11 If an LNG cargo which is subject to these commitments is traded on by the buyer prior to delivery then the buyer will need to ensure that reciprocal commitments are recited in its on-sale arrangement, so that the original buyer can still comply with its obligations to the original seller. This reciprocity should thereafter also apply throughout a successive series of contracts which make up a daisy chain in respect of an LNG cargo. This could be easier said than done however, where the relevant contracts have already been executed and they do not contain the commitments (whether in the same form, or at all).

Footnotes 11

See P-33.

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Warranties and Representations, UKBC-GASLNGS 493298848 (2023)

Warranties and Representations Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section I Part E - Common Components Chapter 41 - Other Provisions Warranties and Representations 41-030 A sales contract will usually contain a limited set of warranties and representations to be given by each party. Under English law the common feature of a warranty and a representation is that they are both statements of present fact made by a party in a contract at the time the contract is executed and which may be repeated during the lifetime of the contract. A warranty is a contractual promise which, if breached, will give the party to whom the warranty is given a right to sue the warrantor for damages (based on compensating that party for the loss of bargain which it has suffered) but, ordinarily, not to rescind the contract, unless a misrepresentation has been incorporated as a warranty or if the breach of warranty amounts to a substantial failure in the performance of the contract. A representation is a statement which is recorded in a contract and which induced the entry of a party into the contract, which if proved to be untrue (that is, the representation becomes a misrepresentation) will entitle the party to whom the representation is made to sue for damages (based on putting that party in the place it would have been if the representation had not been made) or even to rescind the contract. 12 At a minimum in a sales contract each party will warrant and represent that it is validly incorporated, that it has the necessary corporate authority to perform the transaction represented by the sales contract and that it is not engaged in any litigation or other proceedings which might adversely affect its ability to perform the sales contract. Additionally the buyer will usually require the seller to warrant and represent that gas which is being delivered at the delivery point is free of all liens and encumbrances. These warranties and representations are usually expressed to be given initially when the sales contract is executed and certain of them might also be declared to have continuing effectiveness during the lifetime of the sales contract. 41-031 More specific warranties and representations (and a determination of whether those warranties and representations are effective only upon execution of the sales contract or on a continuing basis) will be the subject of negotiation between the parties. This could, for example, include a warranty and representation from the seller that all geological and geophysical data which it has supplied and will supply to the buyer regarding as reserves (12-020) is and will be true and accurate. The seller might also be asked to warrant and represent that its gas production and/or transportation facilities will contribute a certain level of deliverability (11-012), in further support of a facilities obligation in the sales contract, and the buyer might be asked for a reciprocal warranty and representation in respect of its gas reception and/or consumption facilities. A warranty and representation should not be created in respect of the quality specification of gas (21-002) or LNG (32-041) if the sales contract has created a specific seller liability and buyer remedy in respect of an off-specification event. The warranties and representations given in a sales contract will usually be absolute and unqualified; any qualification to a warranty and representation (e.g. where a party wishes to make it clear that its assets which are declared to be free from encumbrances are in fact subject to the security interests of any third party lenders who have provided finance (5-013)) may be set out in the sales contract as appropriate, or in a separate warranty disclosure letter. At the time of execution of the sales contract each party could also be obliged to deliver formal legal opinions which confirm the accuracy of the warranties and representations which are contained in the sales contract. Alternatively, such legal opinions could be the subject of a condition precedent (10-005) and will be required to be delivered after execution of the sales contract. 41-032

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Certain national or international legislation could also operate to imply terms into a sales contract. Consequently the parties may wish to exclude these implied terms, such that their commercial relationship is governed only by the express undertakings contained in the sales contract. Under English law the Sale of Goods Act 1979 (as subsequently amended) implies certain conditions into a contract of the sale of goods in the course of a business, such as the requirement that the seller has the right to sell the goods and that the goods to be sold will be free from encumbrances. The 1979 Act also provides for when risk in the goods will transfer, when title to the goods is transferred and implies certain conditions that goods must be of satisfactory quality and fit for the particular purpose for which they were bought. Gas will likely fall within the definition of goods under the 1979 Act. Consequently the parties to a sales contract will wish to reduce the implication of the terms of the 1979 Act in order to better reflect the terms of their particular commercial arrangements. These implied conditions can be contracted out of or varied. The parties could also be subject to the terms of an international convention such as the 1980 United Nations Convention on Contracts for the International Sale of Goods (also known as the Vienna Convention or the CISG). This Convention applies to contracts for the sale of goods between parties whose places of business are in different states which have adopted the application of the Convention but has not yet been given effect in the UK. Parties to whom the Convention would otherwise apply can contract out or vary the application of the Convention. 13

Footnotes 12 13

See the Misrepresentation Act 1967. Vienna Convention art.6.

End of Document

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Appendix A - Pro Forma Memorandum of Understanding and Termsheets Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section II Appendix A - Pro Forma Memorandum of Understanding and Termsheets A1-001

THIS MEMORANDUM OF UNDERSTANDING is made this [insert] day of [insert] 20[insert] (the Execution Date) BETWEEN: (1)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (Party A); and (2)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (Party B), (each of Party A and Party B called a Party and together called the Parties). In consideration of their mutual covenants and obligations contained in this Memorandum the Parties agree as follows: 1. Background

1.1

The Parties wish to discuss an arrangement whereby Party A would [purchase gas from] [contract for the transportation of gas by] [purchase LNG from] Party B.

1.2 This Memorandum sets out the basic principles for the negotiation and entry into a fully termed [gas sales agreement (the GSA)] [gas transportation agreement (the GTA)] [LNG sale and purchase agreement (the SPA)] by and between the Parties. 2. Duration

2.1

This Memorandum will be effective upon the Execution Date and will terminate on the first to occur of: (i)the expiration of [insert number] days from the Execution Date (the Longstop Date); (ii)the execution of the [GSA] [GTA] [SPA] by the Parties; (iii)the date of termination of this Memorandum in accordance with Clause 2.2. The period from the Execution Date until the date of termination of this Memorandum will be the Term.

2.2 This Memorandum may be terminated at any time after the Execution Date by written agreement made between the Parties or by a Party upon giving not less than [insert number] days’ prior written notice to the other Party. 3. Further negotiation

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3.1 During the Term the Parties will in good faith negotiate the terms of (and, where feasible, will execute) the [GSA] [GTA] [SPA], which will contain the terms set out in the termsheet attached to this Memorandum (which will form part of the Memorandum) and such other terms as the Parties may further agree.

3.2 Party A will prepare the first draft and all subsequent redrafts of the [GSA] [GTA] [SPA], without prejudice to the right of Party B to negotiate the same. 4. Exclusivity For the duration of the Term each Party will not, and each Party will procure that no other person will on behalf of a Party, directly or indirectly solicit, initiate, encourage, conduct or engage in any discussion or enter into any agreement or understanding with any third party regarding the subject matter of this Memorandum. 5. Confidentiality

5.1

The existence of and the terms of this Memorandum, the fact of the ongoing negotiation between the Parties concerning the subject matter of this Memorandum and all information disclosed by and all correspondence exchanged between the Parties during the negotiation of the [GSA] [GTA] [SPA] is Confidential Information. Neither Party will directly or indirectly disclose to any other person any Confidential Information except as permitted in accordance with Clause 5.2.

5.2 During the Term a Party may disclose Confidential Information: (i)to its shareholders, affiliates, professional advisers, directors, officers or employees but only to the extent required to consider the subject matter of this Memorandum; (ii)to other persons to the extent required by applicable law or by relevant regulatory or governmental authorities. In any event the disclosing Party will, to the greatest extent possible, ensure that any Confidential Information is treated confidentially by any person receiving the Confidential Information.

5.3 The obligations of confidentiality contained in this Clause 5 will (subject to Clause 5.4) continue to bind the Parties for a period of [insert number] years after the date of termination of this Memorandum in accordance with Clause 2.

5.4 The obligations of confidentiality contained in this Clause 5 will end upon execution of the [GSA] [GTA] [SPA] if the [GSA] [GTA] [SPA] contains adequate replacement confidentiality provisions. 6. Governing law and jurisdiction

6.1

This Memorandum and any matter relating to this Memorandum will be governed by and construed in accordance with English law (excluding any choice of law rules which would refer this Memorandum or any matter relating to this Memorandum to the laws of another jurisdiction).

6.2 The courts of England and Wales will have exclusive jurisdiction in respect of this Memorandum and any disputes between the Parties regarding this Memorandum will be submitted to the courts of England and Wales for resolution. 7. Entire agreement and transfers

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7.1 This Memorandum constitutes the entire agreement between, and supersedes and replaces any other agreement or understanding between, the Parties (whether oral or written) in relation to the subject matter of this Memorandum.

7.2 During the Term a Party may not assign or otherwise transfer (in whole or in part) any of its rights, interests, covenants or obligations under this Memorandum without the prior written consent of the other Party. 8. Further provisions

8.1

Each Party will be solely responsible for its own costs and expenses incurred in connection with the preparation, negotiation and execution of this Memorandum and the [GSA] [GTA] [SPA].

8.2 Nothing in this Memorandum constitutes the Parties as partners or co-venturers or creates any agency, trust or fiduciary relationship between the Parties in relation to this Memorandum.

8.3 Each Party warrants and represents to the other Party that prior to entry into this Memorandum such Party has complied with, and each Party covenants to the other Party that in the performance of this Memorandum after the Execution Date such Party will comply with, all anti-bribery and anti-corruption laws applicable to that Party in relation to this Memorandum. 9. Failure to execute the [GSA] [GTA] [SPA]

9.1

Without prejudice to the liability of a Party for any breach of this Memorandum, a Party will have no liability to the other Party for consequential losses or damages or loss of profits or opportunity alleged or incurred in consequence of the failure of the Parties to negotiate or to execute the [GSA] [GTA] [SPA] as envisaged by this Memorandum.

9.2 If the Parties have not executed the [GSA] [GTA] [SPA] by the date of termination of this memorandum in accordance with Clause 2 then (unless otherwise agreed in writing by the Parties) the Parties will be under no obligation to [sell or purchase gas] [contract for gas transportation] [sell or purchase LNG] in accordance with the terms of this Memorandum (but without prejudice to the continuing application of Clause 5 between the Parties). IN WITNESS whereof the Parties have entered into this Memorandum as of the Execution Date: SIGNED for and on behalf of Party A: By: ____________________ Name: Position: SIGNED for and on behalf of Party B: By: ____________________ Name: Position:

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Gas Sale and Purchase Termsheet 1.

The Seller

The Seller is [insert], a limited liability company incorporated in [insert].

2.

The Buyer

The Buyer is [insert], a limited liability company incorporated in [insert].

3.

The Parties

The Parties are the Seller and the Buyer. The benefit and the burden of the GSA will apply to a Party’s assignee or successor in title.

4.

Seller credit support

No credit support will be procured by the Seller in respect of the Seller’s obligations under the GSA.

5.

Buyer credit support

The following credit support will be procured by the Buyer (at the Buyer’s expense) in respect of the Buyer’s obligations under the GSA if the Buyer’s credit rating falls below [insert] at any time: [an irrevocable standby letter of credit for a guaranteed amount of not less than US$ [insert] issued by a bank or financial institution incorporated in [insert] with a long-term credit rating of not less than [insert] and having net assets of not less than US$ [insert] and otherwise acceptable to the Seller]. [a guarantee issued by an acceptable corporate guarantor provided that at all times the guarantor has net assets of not less than US$ [insert] and remains an affiliate of the Buyer].

6.

Durations

The basic term of the GSA will be a period of [insert] years from the execution date, subject to earlier termination of the GSA as defined below. The start date for the supply of gas under the GSA will occur within the period of [insert] to [insert], to be determined precisely by the Seller by a funneling mechanism, but otherwise to be no later than [insert]. The delivery period of the GSA will be the period from the start date to the end of the basic term. Each contract year in the delivery period will be a calendar year, pro-rated for part contract years at the start and the end of the delivery period.

7.

Conditions precedent to the start of the delivery period

(Unless waived) the Buyer will obtain the following consents [insert] by no later than [insert] : [insert]. (Unless waived) the Seller will obtain the following consents [insert] by no later than [insert] : [insert]. (Unless waived) the Seller will secure third party financing commitments in respect of the [insert] gas project to a minimum aggregate value of US$ [insert] by no later than [insert] days after the execution date. (Unless waived) the Seller will secure additional gas purchase commitments in respect of the [insert] gas project for an aggregate of [insert] mscf per annum by no later than [insert] days after the execution date. (Unless waived) the Seller will take a final investment decision in respect of the [insert] gas project by no later than [insert] days after the execution date.

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(Unless waived) the Seller will procure an initial reserves certificate for reserves of gas at least equal to [insert] in the Seller’s [insert] gas project by no later than [insert] days after the execution date. (Unless waived) the Seller will (as shipper therein) enter into a gas transportation agreement with [insert] (the transporter) for [insert] the transportation of mscf of gas per annum for [insert] years by no later than [insert]. Each Party will use reasonable endeavours to fulfill the conditions precedent which it is responsible for. The requirement to obtain a condition precedent can only be waived by both Parties in writing. 8.

Extensions

The GSA will only be extended beyond the scheduled end of the basic term by written agreement between the Parties or where an extension period applies to enable the Buyer to recover unrecovered shortfall gas price discount entitlements and/or to recover unrecovered make up gas entitlements.

9.

Termination events

Subject also to termination under applicable law or by written agreement between the parties, the GSA can be terminated on or after the execution date: (1)when the Seller has delivered a quantity of gas equal to the contract quantity; (2)by a Party for the non-fulfillment by the other Party of an unwaived condition precedent by the required date therefor; (3)by the Seller for the Buyer’s aggregate unremedied payment failure exceeding US $ [insert] (4)by the Seller for the Buyer’s failure to issue credit support when required; (5)by the Seller for loss of the gas transportation contract with the transporter (other than for the default of the Seller as the shipper therein); (6)by the Seller where the GSA is no longer economic to perform; (7)by a Party for the other Party’s insolvency; (8)by the Buyer for the Seller’s aggregate non-delivery of gas not relieved by force majeure exceeding [insert] mscf; (9)by the Seller for the Buyer’s aggregate non-offtake of gas for any reason exceeding [insert] mscf; (10)by either Party for a continuous force majeure event exceeding [insert].

10.

Commissioning

The Seller will (if requested by the Buyer) use reasonable endeavours to deliver a quantity of gas in the range of [insert] to [insert] mscf, for commissioning purposes at the delivery point, to be completed not less than [insert] days prior to the start date. Commissioning gas will be paid for by the Buyer at US$ [insert] per mscf and will not count towards the Buyer’s take or pay commitment but will count towards the contract quantity. The Seller’s delivery failure liability and off-specification gas liability provisions in the GSA will not apply to commissioning gas.

11.

Transportation

The Seller will at its own risk and expense procure the transportation of gas to the delivery point through a pipeline owned and operated by the transporter and will enter into a gas transportation agreement with the transporter for that purpose.

12.

Facilities

The Seller will install and maintain the following facilities for the basic term: [insert]. The Buyer will install and maintain the following facilities for the basic term: [insert].

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Mutual access and inspection rights will apply between the Parties in respect of the facilities. No additional liability will be created in respect of a Party for that Party’s failure to perform a facilities obligation. 13.

Delivery point and transfers

The delivery point is the point of connection between the transporter’s pipeline with the Buyer’s gas reception facilities at [insert]. Title to, custody of and risk in the gas will pass from the Seller to the Buyer at the delivery point.

14.

Tax allocation

The Seller will be responsible for taxes arising upstream of the delivery point and the Buyer will be responsible for taxes arising at and downstream of the delivery point. Each Party will indemnify the other Party against tax liabilities which the indemnifying Party is responsible for. Each Party will be responsible for its own corporate and income taxes.

15.

Source of supply

Gas will be supplied from the Seller’s [insert] gas project, to be committed to the Buyer for the performance of the GSA. The Seller may commit additional sources of gas to support the GSA and may withdraw existing sources of gas from supporting the GSA with the Buyer’s approval.

16.

Gas reserves

The Seller will at its own expense procure an initial reserves certificate (issued by a reputable independent petroleum engineer) showing reserves of gas (certified as proved and probable reserves according to SPE-PRMS) at least equal to [insert] in the Seller’s [insert] gas project prior to the start of the delivery period. The Seller will at its own expense issue an annual reserves report to the Buyer. The Seller will at the Buyer’s request and at the Buyer’s expense procure periodic subsequent reserves certificates (issued by a reputable independent petroleum engineer) showing remaining reserves of gas (certified as proved and probable reserves according to SPE-PRMS) in the Seller’s [insert] gas project. The Seller will undertake additional works to support the GSA where a reserves deficiency is indicated. The Seller will give no initial or ongoing warranty or guarantee of the sufficiency of the gas reserves in the Seller’s [insert] gas project to meet the GSA’s requirements.

17.

Nominations and variations

Each day will consist of [insert] equal nomination periods each of [insert] hours. The Buyer will give nominations of gas to be transported for each nomination period no later than [insert] in advance of a day (with the aggregate of the nominations not to exceed the DCQ for the relevant day), subject to a minimum aggregate daily nomination of [insert] mscf or zero mscf. The Buyer’s variations of nominations in force can be made on not less than [insert] hours’ notice prior to a nomination becoming effective for up to [insert] % of a nominated quantity and not less than [insert] hours’ notice prior to a nomination becoming effective for up to [insert] % of a nominated quantity. Nominations and variations will be subject to the corresponding provisions of the gas transportation agreement.

18.

Daily contract quantity

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The daily contract quantity (DCQ) for each day will be [insert] mscf/d (subject to the Seller’s right to set a decline profile on reasonable notice to the Buyer after a plateau period of [insert]).

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19.

Maximum daily contract quantity

The maximum daily contract quantity (MDCQ) for each day will be the DCQ for that day x [insert] %.

20.

Annual contract quantity

The annual contract quantity (ACQ) for each contract year will be the aggregate of the DCQs for that contract year.

21.

Contract quantity

The contract quantity will be the ACQ for each contract year x [insert] years.

22.

Excess gas

Excess gas may be requested by the Buyer for delivery in a variation to a nomination made outside the agreed nomination variation limits or for the delivery of gas in excess of the MDCQ for a day. The Seller will use reasonable endeavours to deliver excess gas. Excess gas will be paid for at US$ [insert] / mscf and will count towards the Buyer’s take or pay commitment and will count towards the contract quantity.

23.

Attributed order

Quantities of gas delivered by the Seller to the Buyer under the GSA will be deemed delivered in the following order: (1)as the ACQ; then (2)as make-up.

24.

Quality specification

Gas delivered by the Seller will at the delivery point meet the following compositional requirements: (1)hydrocarbon dewpoint—not greater than [insert]°C at [insert] Pascals; (2)gross heating value—in the range of [insert] to [insert] Btu/scf; (3)Wobbe Index—in the range of [insert] to [insert] Btu/scf; (4)not more than [insert] % carbon dioxide by volume; (5)not more than [insert] % oxygen by volume; (6)not more than [insert] % nitrogen by volume; (7)not more than [insert] % water by volume; (8)not more than [insert] % mercury by volume; (9)not more than [insert] % hydrogen sulphide by volume; (10)not more than [insert] ppmw total sulphur compounds; (11)not less than [insert] % methane by volume; (12)not more than [insert] % ethane by volume. The Seller will ensure that the pressure upstream of the delivery point will be in a range of [insert] Pascals to [insert] Pascals. The Buyer will ensure that the pressure downstream of the delivery point will be in a range of [insert] Pascals to [insert] Pascals.

25.

Off-specification gas

Each Party will give reasonable notice to the other of a possible off-specification gas event. The Buyer will use reasonable endeavours to take delivery of off-specification gas at the delivery point. Any off-specification gas rejected by the Buyer at the delivery point will be a Seller’s delivery failure (unless force majeure applies). The Seller will have no liability for off-specification gas knowingly taken delivery of by the Buyer at the delivery point. If the Buyer unknowingly takes delivery of off-specification gas at the delivery point then such gas will be a Seller’s delivery failure (unless force majeure applies) if the Buyer was unable to ordinarily utilise the gas and additionally the Seller will indemnify the Buyer

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for damage to and/or clean-up costs related to the Buyer’s facilities capped at [insert] % of the off-specification gas quantity x the price. 26.

Price

Gas will be sold in US$/mscf on the following basis: P

1

= P°1 + [(0.5 x GO/ GO°) + (0.5 x FO x FO°)]

Where P°1 = US$ [insert] per mscf GO = the arithmetic average of the monthly prices of gas oil in US$ /metric tonne published by [insert] for [insert] days ending [insert] days prior to the adjustment period GO° = gas oil fixed at US$ [insert] /metric tonne FO = the arithmetic average of the monthly prices of fuel oil in US$ /metric tonne published by [insert] for [insert] days ending [insert] days prior to the adjustment period FO° = fuel oil fixed at US$ [insert] /metric tonne. 27.

Hardship review

A party may request good faith discussions and amendments to the GSA terms if at any time during the basic term that party claims it is suffering substantial economic hardship in relation to the GSA, with recourse to an independent expert to consider GSA changes if the parties are unable to agree.

28.

Take or pay

The Buyer’s annual take or pay quantity commitment will be [insert] % of the ACQ for each contract year, with adjustments for: (1)shortfall gas quantities; (2)gas not delivered at the delivery point for force majeure reasons affecting the Seller or the Buyer; (3)gas not delivered at the delivery point during scheduled maintenance reductions; (4)a carry forward quantity from the preceding contract year. The Buyer will pay the Seller an annual take or pay payment to reflect the negative deficiency between the quantity of gas taken delivery of and paid for by the Buyer and the annual take or pay quantity for that contract year x the average price for that contract year, to be invoiced for by the Seller in the next contract year.

29.

Make up

If in a contract year the Buyer has taken delivery of and paid for gas equal to the annual take or pay quantity for that contract year the Buyer can thereafter recover (at a zero price) equivalent quantities of gas which the Buyer has previously paid for but not taken delivery of under the take or pay commitment, subject to recovery of make up gas quantities in the order they arose and to the recovery of make up gas arising only in the period of [insert] contract years prior to the intended contract year of recovery. If an outstanding make up gas aggregate exists on termination of the GSA the Seller will (at the Seller’s option) pay a [full value] make up gas termination payment or will extend the GSA beyond the scheduled end of the basic term for a period not exceeding [insert] days to enable the Buyer to recover the make up (subject to the availability of gas transportation capacity in the Seller’s favour). The Seller will have no liability to the Buyer for a failure to deliver a make up quantity when scheduled for delivery (but without prejudice to the Buyer’s right to later recover that make up quantity). The Buyer will lose its entitlement to a make up quantity which the Seller has attempted to deliver but which the Buyer fails to take delivery of (except where such failure occurred for reasons of force majeure, permissible non-delivery under the GSA or the Seller’s fault).

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30.

Carry forward

If in a contract year the Buyer has taken delivery of and has paid for a quantity of gas in excess of the annual take or pay quantity for that contract year the Buyer may apply a downward adjustment to the annual take or pay quantity for the following contract year up to a maximum of [insert] % of the ACQ for the contract year in which the excess arose.

31.

Invoicing and payment

The Seller will prepare monthly invoices for the delivery of gas and annual invoices for annual take or pay payments. The Buyer will pay a Seller’s invoice in full within [insert] days of receipt (payment to be made in US$ to an account nominated by the Seller). A limited set-off right will apply in favour of the Buyer. The Buyer will invoice the Seller for amounts due from the Seller to the Buyer. The Seller will pay a Buyer’s invoice in full within [insert] days of receipt (payment to be made in US$ to an account nominated by the Buyer). Interest will accrue on late or failed payments due from either Party at LIBOR plus [insert] %. Bona fide disputed invoiced amounts will be paid into an interest-bearing third-party account, with recourse to an independent expert for the determination of disputed amounts. The Seller may on [insert] days’ notice suspend deliveries of gas for late payments by the Buyer exceeding [insert] days (excluding amounts not paid by the Buyer as a bona fide disputed amount.

32.

The Seller’s delivery failure

If the Seller fails to deliver all or part of a nominated quantity (except for reasons of force majeure, permissible non-delivery under the GSA or the Buyer’s fault or within a shortfall tolerance of [insert] % of a nominated quantity) then a shortfall gas price discount of [insert] % of the price will apply to the next-delivered quantities of gas in respect of the extent of the Seller’s failure. If an outstanding shortfall aggregate exists on termination of the GSA the Seller will (at the Seller’s option) pay a [full value] shortfall aggregate termination payment or will extend the GSA beyond the scheduled end of the basic term for a period not exceeding [insert] days to enable the Buyer to recover the shortfall aggregate (subject to the availability of gas transportation capacity in the Seller’s favour).

33.

Measurement

The Seller will measure the quantity and quality of gas at the delivery point. Measurement equipment will be supplied and operated by the Seller at the Seller’s expense. The Buyer will have reasonable rights of access to the measurement equipment for the verification of its accuracy.

34.

Maintenance

The Seller will be entitled to reduce the delivery of gas in each contract year to enable the scheduled maintenance of the Seller’s gas production facilities by reductions up to a limit of [insert] % of the applicable ACQ (whether or not maintenance is actually carried out). The Buyer will be entitled to reduce the delivery of gas in each contract year to enable the scheduled maintenance of the Buyer’s gas reception facilities by reductions up to a limit of [insert] % of the applicable ACQ (whether or not maintenance is actually carried out). The Seller and the Buyer will each use reasonable endeavours to coordinate their respective scheduled maintenance requirements.

35.

Force majeure

The GSA will contain customary force majeure relief provisions and exclusions to apply (with reservoir failure relief for the Seller in respect of the Seller’s [insert] gas project). The Seller may sell gas to, and the Buyer may purchase gas from, a third party for the duration of a force majeure event.

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36.

Liability allocation

The Seller and the Buyer will have no liability to each other for consequential losses (to be defined in the GSA and to reflect the governing law of the GSA). The GSA will contain a mutual hold harmless regime between the Seller and the Buyer in respect of personnel and property loss. Each Party will be responsible for third party claims which it caused. The GSA will provide exclusive remedies between the Parties. A Party’s wilful misconduct will disapply indemnification rights and limitations of liability in respect of that Party.

37.

Transfers

A Party may only transfer its interests in the GSA in whole to a third party with the prior written consent of the other Party (such consent not to be unreasonably withheld, subject to the provision of replacement credit support by the Buyer in a Buyer transfer) or to an affiliate without the consent of the other Party (subject to the transferring Party’s continuing liability, and subject to a transfer back if the affiliate ceases to be so). A Party may pledge its interests in the GSA in whole to lenders as security for financing its costs in relation to the GSA.

38.

Change of control

The GSA will not regulate a change of control of a Party.

39.

Dispute resolution

All disputes in relation to the GSA will be resolved by final and binding UNCITRAL arbitration by a panel of 3 arbitrators in London, England (except for technical disputes subject to final and binding expert determination where so specified in the GSA).

40.

Other provisions

The GSA will contain customary and reasonable provisions regarding anti-bribery and corruption legislation compliance, contract amendment, appointment of representatives, confidentiality and announcements, costs, exclusion of implied warranties, further assurances, insurance, non-waiver, notices, representatives, rounding, Seller’s reservations, severability, waiver of sovereign immunity and warranties and representations. The GSA will be written in the English language and will prevail over any [insert] language version.

41.

Governing law

The GSA will be governed by English law, with the courts of England and Wales to have exclusive jurisdiction.

Gas Transportation Termsheet 1.

The Shipper

The Shipper is [insert], a limited liability company incorporated in [insert].

2.

The Transporter

The Transporter is [insert], a limited liability company incorporated in [insert].

3.

The Parties

The Parties are the Shipper and the Transporter. The benefit and the burden of the GTA will apply to a Party’s assignee or successor in title.

4.

Transporter credit support

No credit support will be procured by the Transporter in respect of the Transporter’s obligations under the GTA.

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5.

Shipper credit support

The following credit support will be procured by the Shipper (at the Shipper’s expense) in respect of the Shipper’s obligations under the GTA if the Shipper’s credit rating falls below [insert] at any time: [an irrevocable standby letter of credit for a guaranteed amount of not less than US$ [insert] issued by a bank or financial institution incorporated in [insert] with a long-term credit rating of not less than [insert] and having net assets of not less than US$ [insert] and otherwise acceptable to the Transporter]. [a guarantee issued by an acceptable corporate guarantor provided that at all times the guarantor has net assets of not less than US$ [insert] and remains an affiliate of the Shipper].

6.

Durations

The basic term of the GTA will be a period of [insert] years from the execution date, subject to earlier termination of the GTA as defined below. The start date for the provision of the transportation services under the GTA will occur within the period of [insert] to [insert], to be determined precisely by the Shipper by a funneling mechanism, but otherwise to be no later than [insert]. The delivery period of the GTA will be the period from the start date to the end of the basic term. Each contract year in the delivery period will be a calendar year, pro-rated for part contract years at the start and the end of the delivery period.

7.

Conditions precedent to the start of the delivery period

(Unless waived) the Transporter will obtain the following consents [insert] by no later than [insert] : [insert]. (Unless waived) the Shipper will obtain the following consents [insert] by no later than [insert] : [insert]. (Unless waived) the Shipper will (as seller therein) enter into a gas sales agreement with [insert] (the buyer) for the sale of [insert] mscf of gas per annum for [insert] years by no later than [insert]. Each Party will use reasonable endeavours to fulfill the conditions precedent which it is responsible for. The requirement to obtain a condition precedent can only be waived by both Parties in writing.

8.

Extensions

The GTA will only be extended beyond the scheduled end of the basic term by written agreement between the Parties.

9.

Termination events

Subject also to termination under applicable law or by written agreement between the parties, the GTA can be terminated on or after the execution date: (1)by a Party for the non-fulfillment by the other Party of an unwaived condition precedent by the required date therefor; (2)upon the Transporter’s permanent abandonment of the pipeline; (3)by the Transporter for the Shipper’s aggregate unremedied payment failure exceeding US$ [insert]; (4)by the Transporter for the Shipper’s failure to issue credit support when required; (5)by the Shipper for loss of the gas sales agreement with the buyer (other than for default of the Shipper as the seller therein); (6)by a Party for the other Party’s insolvency; (7)by the Shipper for the Transporter’s aggregate non-transportation of gas for any reason exceeding [insert] mscf;

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(8)by the Transporter for the Shipper’s aggregate non-transportation of gas for any reason exceeding [insert] mscf; (9)by either party for a continuous force majeure event exceeding [insert]. 10.

Commissioning

The Shipper will (if requested by the Transporter) use reasonable endeavours to deliver a quantity of gas in the range of [insert] to [insert] mscf, for commissioning purposes at the input point, to be completed not less than [insert] days prior to the start date. Commissioning gas will be paid for by the Transporter at US$ [insert] per mscf and will not count towards the Shipper’s ship or pay commitment. The Transporter’s lost gas liability and the off-specification gas liability provisions in the GTA will not apply to commissioning gas.

11.

Transportation

The Transporter will during the basic term provide the following services to the Shipper: (1)receipt of gas from the Shipper at the input point; (2)transportation of gas through the Pipeline and delivery of gas to the Shipper at the delivery point (to meet the Shipper’s nominations and at a maximum instantaneous rate of [insert]); (3)maintenance of the Shipper’s stock account.

12.

Facilities

The Shipper will install and maintain the following facilities for the basic term: [insert] The Transporter will install and maintain the following facilities for the basic term: [insert]. Mutual access and inspection rights will apply between the Parties in respect of the facilities. No additional liability will be created in respect of a Party for that Party’s failure to perform a facilities obligation.

13.

Input point, delivery point and transfers

The input point is the point of connection of the Shipper’s gas production facilities with the Transporter’s pipeline at [insert]. The delivery point is the point of connection of the Transporter’s pipeline with the buyer’s gas reception facilities at [insert]. Custody of and risk in the gas will pass from the Shipper to the Transporter at the input point and from the Transporter to the Shipper at the delivery point. Title to gas will at all times remain with the Shipper.

14.

Tax allocation

The Shipper will be responsible for taxes arising upstream of the input point and downstream of the delivery point. The Transporter will be responsible for taxes arising at and downstream of the input point and at and upstream of the delivery point. Each Party will indemnify the other Party against tax liabilities which the indemnifying Party is responsible for. Each Party will be responsible for its own corporate and income taxes.

15.

Nominations and variations

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Each day will consist of [insert] equal nomination periods each of [insert] hours. The Shipper will give nominations of gas to be transported for each nomination period no later than [insert] in advance of a day (with the aggregate of the nominations not to exceed the reserved capacity for the relevant day), subject to a minimum aggregate daily nomination of [insert] mscf or zero mscf.

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The Shipper’s variations of nominations in force can be made on not less than [insert] hours’ notice prior to a nomination becoming effective for up to [insert] % of a nominated quantity and not less than [insert] hours’ notice prior to a nomination becoming effective for up to [insert] % of a nominated quantity. Nominations and variations will be subject to the pipeline system rules. 16.

The reserved capacity

The Transporter will maintain the following reserved capacity in the pipeline for the Shipper for each day in the basic term: [insert] mscf/d and delivery at a maximum instantaneous rate of [insert]. The Transporter may offer unutilised capacity in the capacity in the pipeline to other shippers on a daily basis (without compensation to the Shipper).

17.

Annual reserved capacity

The annual reserved capacity (ARC) for each contract year will be [insert] mscf.

18.

Downward flexibility

In respect of each following contract year the Shipper may decrease the ARC by up to [insert] % of the ARC for the current contract year on notice to the Transporter.

19.

Capacity reduction

Any reduction of capacity in the pipeline from time to time will be borne in the following order of priority: (1)by interruptible shippers; then (2)by all shippers’ excess capacities equally; then (3)by the reserved capacity of a shipper whose act or omission caused the capacity reduction; then (4)by all shippers’ reserved capacities equally.

20.

Linefill gas

The Shipper will use reasonable endeavours to deliver an initial linefill gas quantity not exceeding [insert] mscf at the input point by no later than [insert]. Such initial linefill gas quantity will be held to the Shipper’s account, will not count towards the Shipper’s ship or pay commitment and will not be subject to the payment of the tariff by the Shipper. If in the basic term the Transporter transports gas in the pipeline on behalf of another shipper that other shipper will submit a proportionate quantity of linefill gas and an equivalent quantity of gas will be reduced to the Shipper’s stock account.

21.

Fuel gas

The Shipper will use reasonable endeavours to deliver a quantity of fuel gas not exceeding [insert] to the Transporter at the input point. Fuel gas will be paid for by the Transporter at US$ [insert] / mscf. Such fuel gas will not count towards the Shipper’s ship or pay commitment.

22.

Quality specification

Gas delivered by the Shipper will at the input point meet the following compositional requirements: (1)hydrocarbon dewpoint—not greater than [insert]°C at [insert] Pascals; (2)gross heating value—in the range of [insert] to [insert] Btu/scf; (3)Wobbe Index—in the range of [insert] to [insert] Btu/scf; (4)not more than [insert] % carbon dioxide by volume; (5)not more than [insert] % oxygen by volume; (6)not more than [insert] % nitrogen by volume; (7)not more than [insert] % water by volume; (8)not more than [insert] % mercury by volume;

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(9)not more than [insert] % hydrogen sulphide by volume; (10)not more than [insert] ppmw total sulphur compounds; (11)not less than [insert] % methane by volume; (12)not more than [insert] % ethane by volume. Gas delivered by the Transporter will at the delivery point meet the following compositional requirements: (1)hydrocarbon dewpoint—not greater than [insert]°C at [insert] Pascals; (2)gross heating value—in the range of [insert] to [insert] Btu/scf; (3)Wobbe Index—in the range of [insert] to [insert] Btu/scf; (4)not more than [insert] % carbon dioxide by volume; (5)not more than [insert] % oxygen by volume; (6)not more than [insert] % nitrogen by volume; (7)not more than [insert] % water by volume; (8)not more than [insert] % mercury by volume; (9)not more than [insert] % hydrogen sulphide by volume; (10)not more than [insert] ppmw total sulphur compounds; (11)not less than [insert] % methane by volume; (12)not more than [insert] % ethane by volume. The Shipper will ensure that the pressure upstream of the input point will be in a range of [insert] Pascals to [insert] Pascals. The Transporter will ensure that the pressure downstream of the input point will be in a range of [insert] Pascals to [insert] Pascals. The Transporter will ensure that the pressure upstream of the delivery point will be in a range of [insert] Pascals to [insert] Pascals. 23.

Off-specification gas

Each Party will give reasonable notice to the other of a possible off-specification gas event. The Transporter will use reasonable endeavours to take delivery of off-specification gas at the input point. Any off-specification gas rejected by the Transporter at the input point will not be an adjustment to the Shipper’s ship or pay commitment (unless force majeure applies). The Shipper will use reasonable endeavours to take delivery of off-specification gas at the delivery point. Any off-specification gas rejected by the Shipper at the delivery point will be lost gas (unless force majeure applies). The Transporter will have no liability for off-specification gas knowingly taken delivery of by the Shipper at the delivery point. If the Shipper unknowingly takes delivery of off-specification gas at the delivery point then such gas will be lost gas (unless force majeure applies) if the Shipper was unable to ordinarily utilise the gas and additionally the Transporter will indemnify the Shipper for damage to and/or clean-up costs related to the Shipper’s facilities capped at [insert] % of the off-specification gas quantity x the tariff.

24.

Tariff

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The tariff payable by the Shipper to the Transporter in consideration of the provision of the transportation services will be US$ [insert] / mscf, indexed according to [insert].

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A most favoured nation status provision will apply to the Shipper in respect of the tariff and comparable tariffs payable by other shippers. 25.

Hardship review

A party may request good faith discussions and amendments to the GTA terms if at any time during the basic term that party claims it is suffering substantial economic hardship in relation to the GTA, with recourse to an independent expert to consider GTA changes if the parties are unable to agree.

26.

Ship or pay

The Shipper’s annual ship or pay quantity commitment will be [insert] % of the ARQ for each contract year, with adjustments for: (1)lost gas quantities; (2)gas not delivered at the input point or at the delivery point for force majeure reasons affecting the Shipper or the Transporter; (3)gas not delivered at the input point or at the delivery point during scheduled maintenance reductions; (4)gas transported by the Transporter using the Shipper’s reserved capacity; (5)a carry forward quantity from the preceding contract year. The Shipper will pay the Transporter an annual ship or pay payment to reflect the negative deficiency between the quantity of gas delivered by the Shipper at the input point for transportation in the pipeline and the annual ship or pay quantity for that contract year x the average tariff for that contract year, to be invoiced for by the Transporter in the next contract year.

27.

Make up

If in a contract year the Shipper has transported and has paid tariff for a quantity of gas equal to the annual ship or pay quantity for that contract year the Shipper may thereafter for the remainder of that contract year receive the transportation services at a zero tariff up to the value of the ship or pay payment made in respect of the preceding contract year.

28.

Carry forward

If in a contract year the Shipper has transported and has paid tariff for a quantity of gas in excess of the annual ship or pay quantity for that contract year the Shipper may apply a downward adjustment to the annual ship or pay quantity for the following contract year up to a maximum of [insert] % of the ARC for the contract year in which the excess arose.

29.

Invoicing and payment

The Transporter will prepare monthly invoices for provision of the transportation services and annual invoices for annual ship or pay payments. The Shipper will pay a Transporter’s invoice in full within [insert] days of receipt (payment to be made in US$ to an account nominated by the Transporter). A limited set-off right will apply in favour of the Shipper. The Shipper will invoice the Transporter for amounts due from the Transporter to the Shipper. The Transporter will pay a Shipper’s invoice in full within [insert] days of receipt (payment to be made in US$ to an account nominated by the Shipper). Interest will accrue on late or failed payments due from either Party at LIBOR plus [insert] %. Bona fide disputed invoiced amounts will be paid into an interest-bearing third-party account, with recourse to an independent expert for the determination of disputed amounts. The Transporter may on [insert] days’ notice suspend the transportation of gas for late payments by the Shipper exceeding [insert] days (excluding amounts not paid by the Shipper as a bona fide disputed amount).

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30.

Lost gas

Any quantity of gas which the Transporter fails to take delivery of from the Shipper at the input point or to deliver to the Shipper at the delivery point (except for reasons of force majeure, permissible non-performance by the Transporter under the GTA or the Shipper’s fault) will be lost gas, which the Transporter will compensate the Shipper for at US$ [insert] / mscf.

31.

Measurement

The Transporter will measure the quantity and quality of gas at the input point and at the delivery point. Measurement equipment will be supplied and operated by the Transporter at the Transporter’s expense. The Shipper will have reasonable rights of access to the measurement equipment for the verification of its accuracy. Measurement will be subject to the pipeline system rules.

32.

Maintenance

The Transporter will be entitled to reduce the transportation of Gas in each contract year to enable the scheduled maintenance of the Transporter’s facilities by reductions up to [insert] % of the applicable ARQ (whether or not maintenance is actually carried out). The Shipper will be entitled to reduce the transportation of gas in each contract year to enable the scheduled maintenance of the Shipper’s facilities by reductions up to [insert] % of the applicable ARQ (whether or not maintenance is actually carried out). The Shipper and the Transporter will each use reasonable endeavours to coordinate their respective scheduled maintenance requirements.

33.

Force majeure

The GTA will contain customary force majeure relief provisions and exclusions to apply. The Transporter may transport gas for, and the Shipper may have gas transported by, a third party for the duration of a force majeure event.

34.

Liability allocation

The Shipper and the Transporter will have no liability to each other for consequential losses (to be defined in the GTA and to reflect the governing law of the GTA). The GTA will contain a mutual hold harmless regime between the Shipper and the Transporter in respect of personnel and property loss. Each Party will be responsible for third party claims which it caused. The GTA will provide exclusive remedies between the Parties. A Party’s wilful misconduct will disapply indemnification rights and limitations of liability in respect of that Party.

35.

Transfers

A Party may only transfer its interests in the GTA in whole to a third party with the prior written consent of the other Party (such consent not to be unreasonably withheld, subject to the provision of replacement credit support by the Shipper in a Shipper transfer) or to an affiliate without the consent of the other Party (subject to the transferring Party’s continuing liability, and subject to a transfer back if the affiliate ceases to be so). A Party may pledge its interests in the GTA in whole to lenders as security for financing its costs in relation to the GTA.

36.

Change of control

The GTA will not regulate a change of control of a Party.

37.

Dispute resolution

All disputes in relation to the GTA will be resolved by final and binding UNCITRAL arbitration by a panel of 3 arbitrators in London, England (except for technical disputes subject to final and binding expert determination where so specified in the GTA).

38.

Other provisions

The GTA will contain customary and reasonable provisions regarding anti-bribery and corruption legislation compliance, contract amendment, appointment of representatives, confidentiality and announcements, costs, exclusion of implied warranties, further assurances, insurance, non-waiver, notices, representatives, rounding, severability, waiver of sovereign immunity and warranties and representations.

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The GTA will be written in the English language and will prevail over any [insert] language version. The GTA will provide for entry by the Parties into pipeline system rules prepared by the Transporter. 39.

Governing law

The GTA will be governed by English law, with the courts of England and Wales to have exclusive jurisdiction.

LNG Sale and Purchase Termsheet 1.

The Seller

The Seller is [insert], a limited liability company incorporated in [insert].

2.

The Buyer

The Buyer is [insert], a limited liability company incorporated in [insert].

3.

The Parties

The Parties are the Seller and the Buyer. The benefit and the burden of the SPA will apply to a Party’s assignee or successor in title.

4.

Seller credit support

No credit support will be procured by the Seller in respect of the Seller’s obligations under the SPA.

5.

Buyer credit support

The following credit support will be procured by the Buyer (at the Buyer’s expense) in respect of the Buyer’s obligations under the SPA if the Buyer’s credit rating falls below [insert] at any time: [an irrevocable standby letter of credit for a guaranteed amount of not less than US$ [insert] issued by a bank or financial institution incorporated in [insert] with a long-term credit rating of not less than [insert] and having net assets of not less than US$ [insert] and otherwise acceptable to the Seller]. [a guarantee issued by an acceptable corporate guarantor provided that at all times the guarantor has net assets of not less than US$ [insert] and remains an affiliate of the Buyer].

6.

Durations

The basic term of the SPA will be a period of [insert] years from the execution date, subject to earlier termination of the SPA as defined below. The start date for the supply of LNG under the SPA will occur within the period of [insert] to [insert], to be determined precisely by the Seller by a funneling mechanism, but otherwise to be no later than [insert]. The delivery period of the SPA will be the period from the start date to the end of the basic term. Each contract year in the delivery period will be a calendar year, pro-rated for part contract years at the start and the end of the delivery period.

7.

Conditions precedent to the start of the delivery period

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(Unless waived) the Buyer will obtain the following consents [insert] by no later than [insert] : [insert]. (Unless waived) the Seller will obtain the following consents [insert] by no later than [insert] : [insert].

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(Unless waived) the Seller will secure third party financing commitments in respect of the [insert] gas project to a minimum aggregate value of US$ [insert] by no later than [insert] days after the execution date. (Unless waived) the Seller will secure additional LNG purchase commitments in respect of the [insert] gas project for an aggregate of [insert] million Btus per annum by no later than [insert] days after the execution date. (Unless waived) the Seller will take a final investment decision in respect of the [insert] gas project by no later than [insert] days after the execution date. (Unless waived) the Seller will procure an initial reserves certificate for reserves of gas at least equal to [insert] in the Seller’s [insert] gas project by no later than [insert] days after the execution date. Each Party will use reasonable endeavours to fulfill the conditions precedent which it is responsible for. The requirement to obtain a condition precedent can only be waived by both Parties in writing. 8.

Extensions

The SPA will only be extended beyond the scheduled end of the basic term by written agreement between the Parties or where an extension period applies to enable the Buyer to recover unrecovered shortfall gas price discount entitlements and/or to recover unrecovered make up gas entitlements.

9.

Termination events

Subject also to termination under applicable law or by written agreement between the parties, the SPA can be terminated on or after the execution date: (1)when the Seller has delivered a quantity of LNG equal to the contract quantity; (2)by a Party for the non-fulfillment by the other Party of an unwaived condition precedent by the required date therefor; (3)by the Seller for the Buyer’s aggregate unremedied payment failure exceeding US $ [insert]; (4)by the Seller for the Buyer’s failure to issue credit support when required; (5)by the Seller where the SPA is no longer economic to perform; (6)by a Party for the other Party’s insolvency; (7)by the Buyer for the Seller’s aggregate non-delivery of LNG not relieved by force majeure exceeding [insert] million Btus; (8)by the Seller for the Buyer’s aggregate non-offtake of LNG for any reason exceeding [insert] million Btus; (9)by either Party for a continuous force majeure event exceeding [insert].

10.

Commissioning

The Seller will (if requested by the Buyer) use reasonable endeavours to deliver a quantity of LNG in the range of [insert] to [insert] million Btus, for commissioning purposes at the delivery point, to be completed not less than [insert] days prior to the start date. Commissioning LNG will be paid for by the Buyer at US$ [insert] per mmBtu and will not count towards the Buyer’s take or pay commitment but will count towards the contract quantity. The Seller’s delivery failure liability and off-specification LNG liability provisions in the SPA will not apply to commissioning LNG.

11.

Transportation

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[DES: The Seller will transport LNG by ship from the loading port to the delivery point. The master of a Seller’s LNG ship will sign the conditions of use for the unloading port].

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[FOB: The Buyer will transport LNG by ship from the delivery point. The master of a Buyer’s LNG ship will sign the conditions of use for the loading port]. 12.

Loading port

The loading port for LNG to be supplied under the SPA will be [insert].

13.

Unloading port

The unloading port for LNG to be supplied under the SPA will be [insert] or an agreed diversion destination.

14.

Delivery point and transfers

[DES: The delivery point is the point of connection between the Seller’s LNG ship and the Buyer’s LNG reception facilities at the unloading port]. [FOB: The delivery point is the point of connection between the Seller’s LNG loading facilities at the loading port and the Buyer’s LNG ship]. Title to, custody of and risk in the LNG will pass from the Seller to the Buyer at the delivery point, with provision in the SPA for the later application of an agreed offshore title transfer mechanism if the Parties agree.

15.

Diversions

[DES: either Party may request the diversion of an LNG cargo from delivery to the scheduled unloading port for transportation to and sale at an alternative unloading port and the Parties will use reasonable endeavours to make the diversion on the basis that the additional revenue accruing to the Seller from making the diversion sale (after the deduction of any incremental transportation costs) will be divided between the Parties in the ratio of Seller [insert] % and Buyer [insert] % (unless otherwise agreed)].

16.

Tax allocation

[DES: The Seller will be responsible for taxes arising upstream of the delivery point and the Buyer will be responsible for taxes arising at and downstream of the delivery point]. [FOB: The Seller will be responsible for taxes arising upstream of and at the delivery point and the Buyer will be responsible for taxes arising downstream of the delivery point]. Each Party will indemnify the other Party against tax liabilities which the indemnifying Party is responsible for. Each Party will be responsible for its own corporate and income taxes.

17.

LNG ships

LNG cargoes will be transported using ships with an LNG carrying capacity in the range of [insert] m 3 to [insert] m 3 . [DES: the Seller’s LNG ships will be compatible with the delivery point facilities, will be approved by the Buyer and will be subject to inspection by the Buyer]. [FOB: the Buyer’s LNG ships will be compatible with the delivery point facilities, will be approved by the Seller and will be subject to inspection by the Seller].

18.

Scheduling

The Seller will prepare and issue an annual delivery programme (ADP) for the scheduling and delivery of LNG in advance of each contract year. The Seller will prepare and issue a rolling [insert] day specific delivery schedule (SDS) for the scheduling and delivery of LNG in advance of and within each contract year. The Seller may change the ADP content or the SDS content at any time on [insert] or more days’ notice, and within [insert] days subject to agreement with the Buyer.

19.

Laytime, demurrage and excess berth occupancy charges

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[DES: At the unloading port allowed laytime for a Seller’s LNG ship will be [insert] hours, with used laytime to begin when the Seller’s LNG ship gives notice of readiness to berth and to end when the Seller’s LNG ship is cleared from berth and ready to proceed to open sea.

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Demurrage will be paid by the Buyer to the Seller at an hourly rate of US$ [insert] where used laytime exceeds allowed laytime for a fault of the Buyer or the unloading port. Excess berth occupancy charges will be paid by the Seller to the Buyer at an hourly rate of US$ [insert] where used laytime exceeds allowed laytime for a fault of the Seller or the LNG ship’s master]. [FOB: At the loading port allowed laytime for a Buyer’s LNG ship will be [insert] hours, with used laytime to begin when the Buyer’s LNG ship gives notice of readiness to berth and to end when the Buyer’s LNG ship is cleared from berth and ready to proceed to open sea. Demurrage will be paid by the Seller to the Buyer at an hourly rate of US$ [insert] where used laytime exceeds allowed laytime for a fault of the Seller or the loading port. Excess berth occupancy charges will be paid by the Buyer to the Seller at an hourly rate of US$ [insert] where used laytime exceeds allowed laytime for a fault of the Buyer or the LNG ship’s master]. 20.

Marine services

[DES: the Buyer will give reasonable assistance to procure marine services for the Seller’s LNG ships at the unloading port, provided that the Seller will contract directly for the provision of the marine services]. [FOB: the Seller will give reasonable assistance to procure marine services for the Buyer’s LNG ships at the loading port, provided that the Buyer will contract directly for the provision of the marine services].

21.

Presentation

[DES: if the Seller’s LNG ship arrives warm at, or becomes warm at, the unloading port: -because of the Seller’s fault: the Buyer will provide cool down services at the Seller’s expense; -because of the Buyer’s fault: the Buyer will provide cool down services at the Buyer’s expense; through neither Party’s fault: the Buyer will provide cool down services at the joint expense of the Parties]. [FOB: if the Buyer’s LNG ship arrives warm at, or becomes warm at, the loading port: -because of the Buyer’s fault: the Seller will provide cool down services at the Buyer’s expense; -because of the Seller’s fault: the Seller will provide cool down services at the Seller’s expense; -through neither Party’s fault: the Seller will provide cool down services at the joint expense of the Parties].

22.

Source of supply

Gas will be supplied from the Seller’s [insert] gas project, to be committed to the Buyer for the performance of the SPA. The Seller may commit additional sources of gas to support the SPA and may withdraw existing sources of gas from supporting the SPA with the Buyer’s approval.

23.

Gas reserves

The Seller will at its own expense procure an initial reserves certificate (issued by a reputable independent petroleum engineer) showing reserves of gas (certified as proved and probable reserves according to SPE-PRMS) at least equal to [insert] in the Seller’s [insert] gas project prior to the start of the delivery period. The Seller will at its own expense issue an annual reserves report to the Buyer . The Seller will at the Buyer’s request and at the Buyer’s expense procure periodic subsequent reserves certificates (issued by a reputable independent petroleum engineer)

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showing remaining reserves of gas (certified as proved and probable reserves according to SPE-PRMS) in the Seller’s [insert] gas project. The Seller will undertake additional works to support the SPA where a reserves deficiency is indicated. The Seller will give no initial or ongoing warranty or guarantee of the sufficiency of the gas reserves in the Seller’s [insert] gas project to meet the SPA’s requirements. 24.

Annual contract quantity

The annual contract quantity (ACQ) for each contract year will be [insert] Btus (approximately equivalent to [insert] million tonnes of LNG per annum).

25.

Contract quantity

The contract quantity will be the ACQ for each contract year x [insert] years.

26.

Upward flexibility

[In respect of each contract year the Seller may increase the ACQ by up to [insert] % of the ACQ for the first full contract year on notice to the Buyer no later than [insert] days prior to the start of the contract year]. [In respect of each contract year the Buyer may increase the ACQ by up to [insert] % of the ACQ for the first full contract year on notice to the Seller no later than [insert] days prior to the start of the contract year].

27.

Downward flexibility

[In respect of each contract year the Seller may decrease the ACQ by up to [insert] % of the ACQ for the first full contract year on notice to the Buyer no later than [insert] days prior to the start of the contract year]. [In respect of each contract year the Buyer may decrease the ACQ by up to [insert] % of the ACQ for the first full contract year on notice to the Seller no later than [insert] days prior to the start of the contract year].

28.

Excess LNG

Any quantity of LNG in excess of the ACQ for a contract year will be excess LNG and will be [automatically added to the ACQ for purchase by the Buyer as a put option for the Seller] [offered to the Buyer for purchase as addition to the ACQ as a call option for the Buyer] at [the price] [at the price x [insert] %] and will count towards the contract quantity.

29.

Attributed order

Quantities of LNG delivered by the Seller to the Buyer under the SPA will be deemed delivered in the following order: (1)as the ACQ; then (2)as make-up; then (3)as excess LNG.

30.

Quality specification

LNG delivered by the Seller will at the delivery point LNG (in a gaseous state) meet the following compositional requirements: (1)hydrocarbon dewpoint—not greater than [insert]°C at [insert] Pascals; (2)gross heating value—in the range of [insert] to [insert] Btu/scf; (3)Wobbe Index – in the range of [insert] to [insert] Btu/scf; (4)not more than [insert] % carbon dioxide by volume; (5)not more than [insert] % oxygen by volume; (6)not more than [insert] % nitrogen by volume; (7)not more than [insert] % water by volume; (8)not more than [insert] % mercury by volume; (9)not more than [insert] % hydrogen sulphide by volume;

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(10)not more than [insert] ppmw total sulphur compounds; (11)not less than [insert] % methane by volume; (12)not more than [insert] % ethane by volume. 31.

Off-specification LNG

Each Party will give reasonable notice to the other of a possible off-specification LNG event. The Buyer will use reasonable endeavours to take delivery of off-specification LNG at the delivery point. Any off-specification LNG rejected by the Buyer at the delivery point will be a Seller’s delivery failure (unless force majeure applies). The Seller will have no liability for off-specification LNG knowingly taken delivery of by the Buyer at the delivery point. If the Buyer unknowingly takes delivery of off-specification LNG then such LNG will be a Seller’s delivery failure (unless force majeure applies) if the Buyer was unable to ordinarily utilise the LNG and additionally the Seller will indemnify the Buyer for damage to and/or clean-up costs related to the Buyer’s facilities capped at [insert] % of the off-specification LNG quantity x the price.

32.

Price

LNG will be sold in US$/mmBtu on the following basis: [insert].

33.

Hardship review

A party may request good faith discussions and amendments to the SPA terms if at any time during the basic term that party claims it is suffering substantial economic hardship in relation to the SPA, with recourse to an independent expert to consider SPA changes if the parties are unable to agree.

34.

Take or pay

[The Buyer will take delivery of and pay for each scheduled LNG cargo, and will pay the full value of the cargo if it fails to do so upon receipt of a Seller’s invoice except for LNG not delivered by the Seller for any reason (other than the Buyer’s fault), LNG not taken delivery of by the Buyer for force majeure reasons, and LNG not delivered during scheduled maintenance]. [The Buyer’s take or pay quantity (ATOPQ) commitment will be the ACQ for each contract year with adjustments for annual round-up and round-down and upward and downward flexibility quantities and with exceptions for LNG not delivered by the Seller for any reason (other than the Buyer’s fault), LNG not taken by the Buyer for force majeure reasons, and LNG not delivered during scheduled maintenance. The Buyer will pay the Seller for the negative deficiency between LNG taken delivery of and paid for by the Buyer in a contract year and the ATOPQ for that contract year x the average price for that contract year, to be invoiced for by the Seller in the next contract year].

35.

Make up

If in a contract year the Buyer has taken delivery of and paid for LNG equal to the ATOPQ for that contract year the Buyer can thereafter recover (at a zero price) equivalent quantities of LNG which the Buyer has previously paid for but not taken delivery of under the take or pay commitment, subject to recovery of make up LNG quantities in the order they arose, to the recovery of make up LNG arising only in the period of [insert] contract years prior to the intended contract year of recovery and to the scheduling of such make up in the ADP for the intended contract year of recovery. If an outstanding make up LNG aggregate exists on termination of the SPA the Seller will (at the Seller’s option) pay a [full value] make up LNG termination payment or will extend the SPA beyond the scheduled end of the basic term for a period not exceeding [insert] days to enable the Buyer to recover the make up (subject to the availability of LNG shipping capacity in the Seller’s favour). The Seller will have no liability to the Buyer for a failure to deliver a make up quantity when scheduled for delivery (but without prejudice to the Buyer’s right to later recover that make up quantity).

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The Buyer will lose its entitlement to a make up quantity which the Seller has attempted to deliver but which the Buyer fails to take delivery of (except where such failure occurred for reasons of force majeure, permissible non-delivery under the SPA or the Seller’s fault). 36.

Carry forward

If in a contract year the Buyer has taken delivery of and has paid for a quantity of LNG in excess of the annual take or pay quantity for that contract year the Buyer may apply a downward adjustment to the annual take or pay quantity for the following contract year up to a maximum of [insert] % of ACQ for the contract year in which the excess arose.

37.

Invoicing and payment

The Seller will invoice the Buyer on a cargo-by-cargo basis for LNG delivered within 10 days of a completed delivery and within 20 days of the end of a contract year for an annual take or pay payment due. The Buyer will pay a Seller’s invoice in full within [insert] days of receipt (payment to be made in US$ to an account nominated by the Seller). A limited set-off right will apply in favour of the Buyer. The Buyer will invoice the Seller for amounts due from the Seller to the Buyer. The Seller will pay a Buyer’s invoice in full within [insert] days of receipt (payment to be made in US$ to an account nominated by the Buyer). Interest will accrue on late or failed payments due from either Party at LIBOR plus [insert] %. Bona fide disputed invoiced amounts will be paid into an interest-bearing third-party account, with recourse to an independent expert for the determination of disputed amounts. The Seller may on [insert] days’ notice suspend deliveries of LNG for late payments by the Buyer exceeding [insert] days (excluding amounts not paid by the Buyer as a bona fide disputed amount).

38.

The Seller’s delivery failure

If the Seller fails to deliver all or part of a scheduled LNG quantity (except for reasons of force majeure, permissible non-delivery under the SPA or the Buyer’s fault) the Seller will pay the Buyer an amount equal to the difference between the scheduled LNG quantity and the actual delivered LNG quantity (if any) x [insert] % of the price applicable at the start of the scheduled LNG delivery period. This remedy will be the Seller’s sole liability for a Seller’s delivery failure (excluding the Seller’s additional liability for demurrage or boil-off payments).

39.

Measurement

[DES: The Buyer will measure the quantity and quality of LNG at the delivery point. Measurement equipment will be supplied and operated by the Buyer at the Buyer’s expense. The Seller will have reasonable rights of access to the measurement equipment for the verification of its accuracy]. [FOB: The Seller will measure the quantity and quality of LNG at the delivery point. Measurement equipment will be supplied and operated by the Seller at the Seller’s expense. The Buyer will have reasonable rights of access to the measurement equipment for the verification of its accuracy].

40.

Maintenance

The Seller will be entitled to reduce the delivery of LNG in each contract year to enable the scheduled maintenance of the Seller’s LNG production facilities by reductions up to a limit of [insert] % of the applicable ACQ (whether or not maintenance is actually carried out). The Buyer will be entitled to reduce the delivery of LNG in each contract year to enable the scheduled maintenance of the Buyer’s LNG reception facilities by reductions up to a limit of [insert] % of the applicable ACQ (whether or not maintenance is actually carried out).

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The Seller and the Buyer will each use reasonable endeavours to coordinate their respective scheduled maintenance requirements. 41.

Force majeure

The SPA will contain customary force majeure relief provisions and exclusions to apply (with reservoir failure relief for the Seller in respect of the Seller’s [insert] gas project). The Seller may sell LNG to, and the Buyer may purchase LNG from, a third party for the duration of a force majeure event.

42.

Liability allocation

The Seller and the Buyer will have no liability to each other for consequential losses (to be defined in the SPA and to reflect the governing law of the SPA). The SPA will contain a mutual hold harmless regime between the Seller and the Buyer in respect of personnel and property loss, subject to application of the liability allocation regime in the conditions of use relating to the LNG ship and [loading port] [unloading port] damage. Each Party will be responsible for third party claims which it caused. The SPA will provide exclusive remedies between the Parties. A Party’s wilful misconduct will disapply indemnification rights and limitations of liability in respect of that Party.

43.

Transfers

A Party may only transfer its interests in the SPA in whole to a third party with the prior written consent of the other Party (such consent not to be unreasonably withheld, subject to the provision of replacement credit support by the Buyer in a Buyer transfer) or to an affiliate without the consent of the other Party (subject to the transferring Party’s continuing liability, and subject to a transfer back if the affiliate ceases to be so). A Party may pledge its interests in the SPA in whole to lenders as security for financing its costs in relation to the SPA.

44.

Change of control

The SPA will not regulate a change of control of a Party.

45.

Dispute resolution

All disputes in relation to the SPA will be resolved by final and binding UNCITRAL arbitration by a panel of 3 arbitrators in London, England (except for technical disputes subject to final and binding expert determination where so specified in the SPA).

46.

Other provisions

The SPA will contain customary and reasonable provisions regarding anti-bribery and corruption legislation compliance, contract amendment, appointment of representatives, confidentiality and announcements, costs, exclusion of implied warranties, further assurances, insurance, non-waiver, notices, representatives, rounding, Seller’s reservations, severability, waiver of sovereign immunity and warranties of and representations. The SPA will be written in the English language and will prevail over any [insert] language version.

47.

Governing law

End of Document

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The SPA will be governed by English law, with the courts of England and Wales to have exclusive jurisdiction.

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

Appendix B - Pro Forma Gas Sales Agreement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section II Appendix B - Pro Forma Gas Sales Agreement

Gas Sales Agreement for the [insert project] between [insert Seller] and [insert Buyer] [insert date] Table of Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

DEFINITIONS AND INTERPRETATION TERM OBLIGATIONS FACILITIES GAS RESERVES GAS QUANTITIES COMMISSIONING GAS EXCESS GAS CUSTODY, TITLE AND RISK TRANSFERS TAXES TAKE OR PAY MAKE UP CARRY FORWARD CONTRACT PRICE RELIEF OF HARDSHIP INVOICING AND PAYMENT BUYER’S GUARANTEE SELLER’S RESERVATIONS NOMINATIONS SHORTFALL QUALITY AND OFF-SPECIFICATION GAS MEASUREMENT MAINTENANCE FORCE MAJEURE LIABILITIES AND LIMITATIONS TRANSFERS TERMINATION CONFIDENTIALITY ARBITRATION EXPERT DETERMINATION

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

31. 32. 33. 34. 35. 36. SCHEDULES 1. 2. 3. 4. 5. 6. B-001

INSURANCE NOTICES WARRANTIES AND REPRESENTATIONS REPRESENTATIVES GENERAL APPLICABLE LAW AND JURISDICTION The Buyer’s Facilities, the Delivery Point, the Pipeline, the Seller’s Facilities The Designated Sources, the Supply Area Measurement The Daily Contract Quantity The Specification The Initial Reserves Certificate

THIS AGREEMENT is made this [insert] day of [insert] 20[insert] BETWEEN: (1)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Seller); and (2)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Buyer), (each of the Seller and the Buyer called a Party and together called the Parties). WHEREAS: (A)The Seller has authority in accordance with the Seller’s Concession to produce, transport and sell Gas. (B)The Seller wishes to sell Gas to the Buyer and to transport Gas for delivery to the Buyer at the Delivery Point. (C)The Buyer has authority in accordance with the Buyer’s Concession to own and operate the Buyer’s Facilities. (D)The Buyer wishes to purchase Gas from the Seller for delivery to the Buyer at the Delivery Point. (E)The Seller will sell and transport Gas and the Buyer will purchase Gas in accordance with this Agreement. In consideration of their mutual covenants and obligations contained in this Agreement the Parties agree as follows:

1. Definitions and Interpretation 1.1 Definitions Except where expressly provided to the contrary in this Agreement the following terms and expressions will have the following meanings: ABC Provision means any applicable law or regulation, embargo or economic control imposed by a state or by a Governmental Authority, regional agency or multinational agency which regulates bribery or corruption.

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

Acceptable Bank means a bank or financial institution incorporated in [insert location] with a long-term credit rating of not less than [insert value] from [insert rating agency] and having net assets of not less than US$ [insert number] and which is otherwise acceptable to the Seller (acting reasonably). Acceptable Guarantor means a company which at all times remains an Affiliate of the Buyer and which has net assets of not less than US$ [insert number] and which is otherwise acceptable to the Seller (acting reasonably). Act of Insolvency means in respect of a Party its insolvency, winding-up, dissolution, administration or liquidation, the making by it of any arrangement or composition with its creditors or the taking of possession by an encumbrancer of, or the appointment of a receiver or administrative receiver over, the whole or any substantial part of its property or assets or its ceasing or threatening to cease to carry on business and any equivalent or analogous procedures by whatsoever name known and in whatsoever jurisdiction. Additional Source means a Gas reservoir or other source of Gas from which Gas may be delivered to the Buyer at the Delivery Point in accordance with this Agreement which source of Gas is located within the Supply Area but is not a Designated Source. Affected Party means a Party claiming relief in accordance with Article 24 in respect of a Force Majeure Event. Affiliate means in relation to any person or Party, another person: (i)that is directly or indirectly controlled by such first-mentioned person or Party; (ii)that directly or indirectly controls such first-mentioned person or Party; (iii)that is directly or indirectly controlled by a person that also directly or indirectly controls such first-mentioned person or Party. Agreement means this agreement as the same may from time to time be amended, supplemented or transferred in accordance with its terms. Annual Contract Quantity or ACQ means in respect of any Contract Year the DCQ in respect of that Contract Year multiplied by the number of days in that Contract Year. Annual Take or Pay Payment means in respect of any Contract Year any Annual Deficiency for that Contract Year multiplied by the arithmetic average of the Contract Prices for that Contract Year. Atmospheric Pressure means an absolute pressure of 29.92 inches of mercury, where an inch of mercury is that pressure exerted by a column of mercury 1 inch high at 0°C and under standard gravitational force (acceleration of 32.174 feet per second per second) equal to 0.491154 pounds of force per square inch. Authorisation means any approval, authorisation, consent, exemption, licence, order or permission of any Governmental Authority which is or was necessary for the performance by a Party of any covenant or obligation or for the exercise by a Party of a right or interest in accordance with this Agreement. Basic Term means the period of this Agreement from the Execution Date until the Termination Date. British thermal unit or Btu means the amount of heat equal to 1,055.06 Joules. Business Day means any day other than a Saturday, a Sunday or a public holiday in [insert location]. Buyer’s Approvals means all Authorisations required from any Governmental Authority of [insert location] in connection with the design, construction, installation, commissioning, maintenance, repair and operation of the Buyer’s Facilities. Buyer’s Associated Persons means any Affiliate, agent or contractor of the Buyer, any director, officer or employee of the Buyer or of any of the foregoing persons and any dependent of any such director, officer or employee. Buyer’s Concession means the concession dated [insert date] and granted to the Buyer by [insert grantor] entitling the Buyer to own and operate the Buyer’s Facilities. Buyer’s Facilities means the Gas reception, processing and transportation facilities which are necessary to receive Gas at the Delivery Point in accordance with the requirements of this Agreement as further identified in Schedule 1. Certified Reserves means the Reserves certified by a Reserves Certificate as being in the Designated Sources.

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

Commissioning Date means the date which is [insert number] days prior to the Start Date. Commissioning Gas Price means US$ [insert amount] per mscf. Commissioning Period means the period from the Commissioning Date until the Start Date. Confidential Information means the content of this Agreement and all information disclosed in the process of negotiating or otherwise existing in connection with this Agreement but excluding any information which when used or disclosed has become part of the public domain other than through a breach of this Agreement or which has been lawfully acquired (other than in accordance with Article 30) by the Party or person using the same or to whom disclosure is made. Consequential Loss means any of the loss or deferment of profit, opportunity or anticipated earnings, the loss of goodwill or any special, indirect or consequential loss, damage or expenditure which results from a breach of this Agreement by a Party which was not, at the time of the commission of the breach, reasonably foreseeable by the Party in breach as a likely consequence to the other Party of the breach. Contract Month means a period of time during the Delivery Period from the first day of each calendar month until the last day of the same calendar month, provided that: (i)the first Contract Month will be from the Start Date until the last day of the calendar month in which the Start Date occurs; (ii)the last Contract Month will be from the first day of the calendar month in which the last day of the Delivery Period occurs until the last day of the Delivery Period, and in each case any quantities of Gas will be pro-rated accordingly. Contract Price means the price of Gas as determined in accordance with Article 14. Contract Quantity means [insert number] mscf of Gas. Contract Time means Greenwich Mean Time [plus [insert number] hours]. Contract Year means a period of time during the Delivery Period from the first day of [insert month] in any calendar year until the last day of [insert month] in the same calendar year, provided that: (i)if the Start Date falls on a date other than the first day of [insert month] then the first Contract Year will be from the Start Date until the last day of [insert month] in the calendar year in which the Start Date occurs; (ii)if the Delivery Period ends on a day which does not coincide with the end of a Contract Year then the last Contract Year will be from the last occurring first day of [insert month] prior to the date upon which the Delivery Period ends until the last day of the Delivery Period, and in each case any quantities of Gas will be pro-rated accordingly. Daily Contract Quantity or DCQ means the quantity of Gas determined in accordance with Article 6. Decline Period means the period during the Delivery Period which follows the end of the Plateau Period. Delivery Period means the period of this Agreement from the Start Date until the Termination Date. Delivery Point means the downstream flange of the Seller’s Gas delivery control facilities at the Gas delivery and reception facilities located at [insert location] as further illustrated in Schedule 1. Delivery Pressure means the pressure of Gas immediately upstream of the Delivery Point, expressed in Pascals. Designated Source means in respect of each Gas reservoir specified in Schedule 2 (as such Schedule 2 may be amended from time to time in accordance with this Agreement) all sub-sea formations in which there exists Gas to the extent that such formations underlie the area delineated by the coordinates specified in Schedule 2 for that Gas reservoir and which are: (i)equivalent and capable of correlation with the intervals identified in the relevant wells for that Gas reservoir specified in Schedule 2; (ii)naturally in communication in continuous Gas phase with the Gas encountered in such intervals.

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

Downstream Pressure means the pressure of Gas immediately downstream of the Delivery Point, expressed in Pascals. Economic means: (i)in respect of the Seller’s rights, interests, covenants or obligations in accordance with Article 4.1 or Article 27.2 a positive cash flow (after all reasonable costs expected to be associated with the operation of the Seller’s Facilities to the extent utilised for the production, transportation and delivery of Gas in accordance with this Agreement have been deducted from the expected revenues from the sale of Gas to the Buyer which would be received if the Seller delivered a quantity of Gas in a Contract Year equal to the Annual Take or Pay Quantity applicable to that Contract Year) which is sufficient to enable the Seller to earn a post-tax rate of return which is not less than the minimum post-tax rate of return normally acceptable to Gas sellers acting in accordance with the Standard of a Reasonable and Prudent Person for Gas production and sales projects in [insert location] where the commercial circumstances (including the degree of risk) are comparable; (ii)in respect of the Buyer’s rights, interests, covenants or obligations in accordance with Article 4.2 a positive cash flow (after all reasonable costs expected to be associated with the operation of the Buyer’s Facilities to the extent utilised for the reception, processing and transportation of Gas in accordance with this Agreement have been deducted from the expected revenues from the resale of Gas which would be received if the Seller delivered a quantity of Gas in a Contract Year equal to the Annual Take or Pay Quantity applicable to that Contract Year) which is sufficient to enable the Buyer to earn a post-tax rate of return which is not less than the minimum posttax rate of return normally acceptable to Gas resellers acting in accordance with the Standard of a Reasonable and Prudent Person for Gas reception and resale projects in [insert location] where the commercial circumstances (including the degree of risk) are comparable, and where in either of the above cases for the purpose of calculating the cash flows as referred to above: (a)the arithmetic averages of the Contract Prices for the 12 Contract Months immediately prior to the Contract Month in which the calculation of such cash flows is made will be used; (b)there will be excluded any modification in revenues as a result of the classification of any quantity of Gas as Commissioning Gas, Excess Gas, Off-Specification Gas or Shortfall Gas; (c)post-tax means after taking account of any reduction in revenues arising from the application of any applicable Taxes. Excess Gas means any quantity of Gas (without double counting): (i)which in respect of a Nomination Period is requested by the Buyer for delivery by the Seller at the Delivery Point outside the minimum time and variation limits specified in Article 18.3 within which the Seller is obliged to accept a variation of a Nominated Quantity; (ii)which in respect of a Gas Day is in excess of the MDQ for that Gas Day. Excess Gas Price means [insert number] % of the Contract Price. Execution Date means the date shown above, being the date upon which this Agreement is entered into between the Parties. Gas means any hydrocarbons or mixture of hydrocarbons and other gases consisting primarily of methane which at 15.55°C and at Atmospheric Pressure are predominantly in the gaseous state but such term will not include the separate constituents extracted before the delivery of Gas to the Buyer at the Delivery Point. Gas Day means a period of 24 hours commencing at [insert time]. Gas Transportation Agreement means the agreement so titled and dated [insert date] entered into between the Seller (as shipper therein) and the Transporter and providing for the transportation in the Pipeline to the Delivery Point by the Transporter on behalf of the Seller (as shipper therein) of [insert number] mscf of Gas per annum for [insert number] years. Governmental Authority means in respect of any country any national, regional, state, municipal, local or other government or any sub-division, agency, commission or authority thereof or any quasi-governmental organization therein acting within its legal authority.

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

Gross Heating Value or GHV means the number of Btus produced by the complete combustion at Atmospheric Pressure of 1 scf of Gas at 15.55°C with excess air at the same temperature and pressure as the Gas when the products of combustion are cooled to 15.55°C and when the water formed by combustion is condensed to the liquid state and the products of combustion contain the same total mass of water vapour as the Gas and air before combustion. Index means any index specified for use in determining the Contract Price in accordance with Article 14. Initial Reserves Certificate means the Reserves Certificate certifying the existence (as of the Execution Date) of Reserves in the Designated Sources of not less than [insert number] mscf of Gas and issued by [insert issuer] in the form attached as Schedule 6. ISO means the International Organization for Standardisation. Joule means the unit so defined in as defined in ISO 1000:1992(E). LIBOR means in relation to any amount to which it is applied the 1 month London Interbank Offered Rate for US $ as it appears on the Bridge/Telerate screen page 3750 as at 11:00 hours (London time) (or such other page on the Bridge/Telerate screen as may replace such page which displays the London Interbank Offered Rate for US$) on the day which is 2 Business Days before the first day on which LIBOR is required to apply in respect of such amount in accordance with this Agreement. If any day on which LIBOR is to be set or reset is not a Business Day in London then LIBOR will be set or reset by reference to the next Business Day in London. Maintenance Day means a day on which Scheduled Maintenance is or is to be performed. mscf means 1,000 scf. Nomination Period means in respect of each Gas Day during the Delivery Period any of the [insert number] consecutive [insert number] hour periods within such Gas Day and the first such Nomination Period will commence at [insert time] hours on each Gas Day. Outstanding Annual Deficiency means any Annual Deficiency or accrual of Annual Deficiencies in respect of which the Buyer has made an Annual Take or Pay Payment which is eligible to be recovered but which has not been recovered by the Buyer as Make Up Gas in accordance with Article 12. Pascal means the unit so defined in as defined in ISO 1000:1992(E). Pipeline means the pipeline and associated facilities owned and operated by the Transporter which is used to transport Gas from the Seller’s Gas production facilities at [insert location] to the Delivery Point as further identified in Schedule 1. Pipeline Approvals means all Authorisations required from any Governmental Authority in connection with the design, construction, commissioning, maintenance, repair and operation of the Pipeline. Pipeline System Rules means the rules executed and issued or to be executed and issued by the Transporter and all Pipeline users (including the Seller in its capacity as such) relating to the operation of the Pipeline. Plateau Period means the period from the Start Date until the first to occur of: (i)the last day of [insert date] in the Contract Year in which a cumulative quantity of Gas equal to [insert number] mscf has been delivered by the Seller to the Buyer at the Delivery Point in accordance with this Agreement; (ii)the day which is the [insert date] annual anniversary of the Start Date. Rating Agency means [insert name] credit rating agency (or if [insert name] has ceased to exist and has not been replaced then a reasonably equivalent credit rating agency, in which case the credit ratings referred to in Article 17 will be revised to an appropriate equivalent standard). Reasonable and Prudent Person means a person seeking in good faith to perform its covenants or obligations in accordance with this Agreement and in so doing and in the general conduct of its undertaking exercising that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced person complying with all applicable laws engaged in the same type of undertaking under the same or similar circumstances and conditions and the expression Standard of a Reasonable and Prudent Person will be construed accordingly.

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Appendix B - Pro Forma Gas Sales Agreement, UKBC-GASLNGS 493298851 (2023)

Remaining Dedicated Reserves means at any time in respect of each Designated Source the Certified Reserves for that Designated Source less the aggregate of the quantities of Gas from that Designated Source (if any) which have since the date of the last Reserves Certificate for that Designated Source been: (i)delivered to the Buyer at the Delivery Point; (ii)sold or delivered to any Third Party; (iii)utilised or consumed in accordance with Article 18. Reserves means reserves of Gas defined as proved and probable Gas reserves in accordance with the SPE Guidelines. Reserves Certificate means a certificate or certificates certifying Reserves and issued from time to time by independent petroleum engineers of sound international reputation. Schedule means a schedule to this Agreement. Scheduled Maintenance means in relation to any of the Seller’s Facilities or the Buyer’s Facilities the inspection, maintenance, repair, modification or replacement thereof as determined in accordance with Article 23. Seller’s Approvals means all Authorisations required from any Governmental Authority of [insert location] in connection with the design, construction, installation, commissioning, maintenance, repair and operation of the Seller’s Facilities. Seller’s Associated Persons means any Affiliate, agent or contractor of the Seller, any director, officer or employee of the Seller or of any of the foregoing persons and any dependent of any such director, officer or employee. Seller’s Concession means the concession dated [insert date] and granted to the Seller by [insert grantor] entitling the Seller to produce, transport and sell Gas from the Supply Area. Seller’s Documents means the Seller’s Concession and the Gas Transportation Agreement. Seller’s Facilities means the Gas production and transportation facilities which are necessary to produce and transport Gas to the Delivery Point in accordance with this Agreement (but excluding the Pipeline) as further identified in Schedule 1. SPE means the Society of Petroleum Engineers (or if the SPE has ceased to exist and has not been replaced then a reasonably equivalent oil and gas reserves engineering body). SPE Guidelines means the guidelines related to the definition, classification and estimation of hydrocarbon resources as laid down by the SPE from time to time, which as at the Execution Date will be the SPE’s Petroleum Resources Management System (PRMS) July 2018 revision. Specific Gravity means the mass of a volume of Gas divided by the mass (expressed in the same units) of an equal volume of dry standard air as defined in ISO 6976:1995(E) both gases being at 15.55°C and Atmospheric Pressure. Specification means the Gas composition values set out in Schedule 5. Standard cubic foot or scf means that quantity of Gas which at 15.55°C in dry condition and at Atmospheric Pressure and the Gas being saturated by water vapour at the same temperature and pressure occupies a volume of 1 cubic foot. Supply Area means the contract area of the Seller’s Concession which at the Execution Date is as defined by the coordinates listed in Schedule 2 and illustrated by the map attached in Schedule 2 (as the same may from time to time be modified in accordance with the Seller’s Concession). Taxes means any tax, impost, levy or duty including value added tax, goods and services tax, excise duties and customs duties, withholding taxes or any amount charged by reference to the energy value and/or the carbon content of Gas arising in respect of the production, processing, transportation, sale, consumption or resale of Gas which is sold, purchased or transported in accordance with this Agreement. Termination Date means the date upon which this Agreement expires or is otherwise terminated in accordance with its terms or in accordance with applicable law. Third Party means any person other than a Party.

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Third Party Account means the account numbered [insert number] and held at [insert bank name] in the name of [insert account name] or such other account as the Parties may agree in writing. Threshold Amount means US$ [insert amount]. Transporter means [insert name], the person identified as such in the Gas Transportation Agreement. UNCITRAL Rules means the UNCITRAL arbitration rules contained in Resolution 31/98 adopted by the United Nations General Assembly on December 15, 1976 and entitled “Arbitration Rules of the United Nations Commission on International Trade Law”. Week means a period of 7 days from [insert day] until [insert day]. Wilful Misconduct means any intentional, conscious or reckless disregard of any provision of this Agreement by a Party which is not justifiable by any special circumstances but which will not include any omission, error of judgment or mistake made by such Party in the exercise in good faith of any function, authority or discretion conferred upon that Party in accordance with this Agreement. Wobbe Index means the GHV divided by the square root of the Specific Gravity.

1.2 Interpretation Except where expressly provided to the contrary in this Agreement: 1.2.1 the Schedules form part of this Agreement and in the event of any conflict between the main body of this Agreement and a Schedule the main body of this Agreement will prevail; 1.2.2 reference to any consent not to be unreasonably withheld is deemed to be qualified by the requirement that such consent will also not be unreasonably conditioned or delayed; 1.2.3 reference to include and including is deemed to be qualified by the additional term without limitation; 1.2.4 reference to any publication, statute, rule, regulation, instrument or standard means the same as amended, supplemented or replaced from time to time; 1.2.5 reference to any agreement means the same as amended, supplemented or replaced from time to time; 1.2.6 in the computation of periods of time from a specified day to a later specified day: (i)from means from and including and until and to means to and including; (ii)any requirement that an action may or will be taken within a specified number of days means that such action may or will be taken within the number of days so specified starting at 00:00 hours on the day on which the requirement to take such action arose;

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1.2.7 reference to time means Contract Time and reference to a date for the performance of a covenant or obligation means the date in [insert location]; 1.2.8 all quantities of Gas referred to or expressed are in mscf; 1.2.9 reference to any amount of money means that amount in US$; 1.2.10 reference to Articles or Schedules means reference to Articles of or Schedules to this Agreement; 1.2.11 headings are inserted for ease of reference only and will not affect interpretation nor have any legal effect; 1.2.12 unless the context requires otherwise, words denoting the singular include the plural and vice versa and words denoting any gender include all genders; 1.2.13 any remedy which provides for the payment of liquidated damages by a Party: (i)represents a genuine pre-estimate of the likely or possible loss or damage which might otherwise be suffered by the Party to whom such liquidated damages are payable in consequence of the act or omission of the Party liable to pay such liquidated damages; and (ii)fairly reflects an amount which is proportionate to the protection of the legitimate commercial interests of the Party to whom such liquidated damages are payable in enforcing its rights in accordance with this Agreement, and will not in either case in any way be construed as a penalty; 1.2.14 any good faith best estimate which is given by a Party when required in accordance with this Agreement is non-binding and given for information only and the Party giving such good faith best estimate will have no liability to the other Party for any inaccuracy therein; 1.2.15 no rule of construction will apply to the disadvantage of a Party because that Party was responsible for the preparation of this Agreement or any part of it.

1.3 Succession

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1.3.1 This Agreement will bind and enure to the benefit of the Parties and their respective successors and permitted assigns. 1.3.2 In this Agreement reference to any Party or any person includes that Party’s or that person’s successors and permitted assigns.

2. Term 2.1 Duration This Agreement will (subject to Article 2.3) come into force on the Execution Date and will subsist for the Basic Term.

2.2 The Start Date 2.2.1 The Start Date will be the date determined in accordance with Article 2.2.2 unless the Parties otherwise agree in writing. 2.2.2 The Start Date will occur during the [insert number] day period from the day which is [insert number] days after the Effective Date (the First Window Period) and will be established in accordance with the following procedure: (i)the Seller will give notice to the Buyer at least [insert number] days prior to the commencement of the First Window Period of a [insert number] day period falling within the First Window Period (the Second Window Period) during which the Start Date will occur or, in the absence of notice being given by the Seller in accordance with this Article 2.2.2(i), the Second Window Period will be the last [insert number] days of the First Window Period; (ii)the Seller will give notice to the Buyer at least [insert number] days prior to the start of the Second Window Period of the day within the Second Window Period which will be the Start Date or, in the absence of notice being given by the Seller in accordance with this Article 2.2.2(ii), the Start Date will be the last day of the Second Window Period.

2.3 The Conditions 2.3.1 The provisions of this Agreement (except for this Article 2.3 and each of Articles 1, 3.3, 3.4, 4.3, 5.1, 5.2, 5.6, 10 and 24 to 36 (inclusive)) are conditional upon the fulfilment or the waiver of the following conditions (the Conditions): (i)the Buyer having secured the following consents: [define consents]; (ii)the Seller having secured the following consents: [define consents];

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(iii)the Seller having secured third party financing commitments for the development of the Designated Sources to a minimum aggregate value of US$ [insert number]; (iv)the Seller having secured additional purchase commitments for the supply of Gas from the Designated Sources of an aggregate of [insert number] mscf per annum; (v)the Seller having taken a final investment decision for the development of the Designated Sources; (vi)the procurement by the Seller of the Initial Reserves Certificate; (vii)the Gas Transportation Agreement having been entered into between the Seller and the Transporter. 2.3.2 Each of the Conditions will be satisfied (or waived in accordance with Article 2.3.6) by [insert date] or such other date as the Parties may agree in writing (the Longstop Date). 2.3.3 Each Party will endeavour in good faith to satisfy or procure the satisfaction of each Condition for which it is responsible (the Responsible Party) by the Longstop Date and will keep the other Party reasonably informed as to the progress being made towards satisfaction of each such Condition. 2.3.4 A Party will furnish the Responsible Party upon request by the Responsible Party with reasonable assistance in fulfilling each Condition for which the Responsible Party is responsible. 2.3.5 Promptly upon the satisfaction of any Condition the Responsible Party will in writing give notice to the other Party of such satisfaction. 2.3.6 The requirement for the satisfaction of any Condition can only be waived by the agreement of the Parties in writing. 2.3.7 The date upon which all of the Conditions have been satisfied or waived in accordance with this Article 2.3 will be the Effective Date. 2.3.8 If any Condition is not satisfied or waived by the Longstop Date therefor: (i)the Responsible Party in respect of such Condition will promptly give notice to the other Party of the reason for the delay in satisfaction of the Condition and the revised date by which it is reasonably expected that the Condition will be satisfied; (ii)with effect from the expiry of [insert number] days after the Longstop Date, unless the relevant Condition has been satisfied or waived or the Parties have otherwise agreed in writing during such period of [insert number] days, the Party other than the Responsible Party may thereafter terminate this Agreement with immediate effect by giving notice to the Responsible Party.

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3. Obligations 3.1 Sale and purchase The Seller will sell and will deliver Gas to the Buyer and the Buyer will take delivery of and will pay for Gas, or will pay for Gas if not taken delivery of, in accordance with this Agreement.

3.2 Transportation to the Delivery Point The Seller will transport to the Delivery Point all quantities of Gas nominated for delivery by the Buyer in accordance with this Agreement and the Buyer acknowledges the entry of the Seller into the Gas Transportation Agreement for the transportation of Gas to the Delivery Point on the Seller’s behalf by the Transporter.

3.3 Approvals for the Seller To the extent necessary for the Seller to perform its covenants or obligations in accordance with this Agreement: 3.3.1 the Seller will obtain the Seller’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) and will procure that the Pipeline Approvals will be obtained in each case prior to the Start Date; 3.3.2 the Seller will maintain the Seller’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) in force and will procure the maintenance of the Pipeline Approvals in force in each case throughout the Basic Term; 3.3.3 the Seller will maintain the Seller’s Concession in force throughout the Basic Term.

3.4 Approvals for the Buyer To the extent necessary for the Buyer to perform its covenants or obligations in accordance with this Agreement: 3.4.1 the Buyer will obtain the Buyer’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) prior to the Start Date; 3.4.2 the Buyer will maintain the Buyer’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) in force throughout the Basic Term; 3.4.3

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the Buyer will maintain the Buyer’s Concession in force throughout the Basic Term.

3.5 The Seller’s inability to deliver Gas 3.5.1 If in respect of a Nomination Period the Seller has or will have insufficient quantities of Gas to deliver the Nominated Quantity for such Nomination Period then: (i)the Seller will promptly give notice to the Buyer (a Gas Deficiency Notice) of such insufficient quantities of Gas; (ii)such quantities of Gas that the Seller may have available for delivery in respect of the Nominated Quantity and to all other buyers from the Seller at the Delivery Point (if any) will be allocated between the Buyer and such other buyers in the proportion that the Nominated Quantity bears to such other buyers’ nominations. 3.5.2 When the Seller has or will have sufficient quantities of Gas to recommence the deliveries of Gas to deliver the Nominated Quantity for a Nomination Period then the Seller will promptly give notice to the Buyer (a Gas Deficiency Remediation Notice) of such sufficient quantities of Gas. 3.5.3 The Buyer may within [insert number] days of the allocation of any quantities of Gas made by the Seller in accordance with Article 3.5.1(ii) request a verification (to be performed by an independent auditor appointed by and at the Buyer’s expense) of such allocation, whereupon the Seller will make available such information as the auditor may reasonably require in order to verify that such allocation has been properly made.

3.6 The Buyer’s inability to take delivery of Gas 3.6.1 If in respect of a Nomination Period the Buyer is or will be unable to take delivery of the quantity of Gas due for delivery in respect of such Nomination Period and from any other sellers of Gas for delivery to the Buyer at the Delivery Point (if any) then: (i)the Buyer will promptly give notice to the Seller of such inability to take delivery; (ii)such quantities of Gas that the Buyer is or will be able to take delivery of at the Delivery Point will be allocated between the Seller and such other sellers in the proportion that the Nominated Quantity bears to the quantities of Gas nominated by the Buyer for delivery by such other sellers. 3.6.2 When the Buyer has or will have sufficient ability to take delivery of Gas to take delivery of the Nominated Quantity for a Nomination Period then the Buyer will promptly give notice to the Seller of such sufficient ability. 3.6.3 The Seller may within [insert number] days of the allocation of any quantities of Gas made by the Buyer in accordance with Article 3.6.1(ii) request a verification (to be performed by an independent auditor appointed by and at the Seller’s

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expense) of such allocation, whereupon the Buyer will make available such information as the auditor may reasonably require in order to verify that such allocation has been properly made.

4. Facilities 4.1 The Seller’s Facilities 4.1.1 The Seller will (even if it is not Economic to do so) fully and properly design, construct, install and commission the Seller’s Facilities prior to the Start Date. 4.1.2 Until the end of the Plateau Period the Seller will (even if it is not Economic to do so) maintain, repair and operate the Seller’s Facilities. 4.1.3 From the end of the Plateau Period the Seller will maintain, repair and operate the Seller’s Facilities only if it is Economic to do so. 4.1.4 Notwithstanding any of Articles 4.1.1, 4.1.2 or 4.1.3 the Seller will not be obliged to design, construct, install, commission, maintain, repair or operate any of the Seller’s Facilities and will (subject to Article 4.1.5) be permitted on giving the Buyer reasonable prior notice to bring out of use, abandon or use for any other purposes any of the Seller’s Facilities which in the Seller’s reasonable opinion do not materially contribute to the production, transportation or delivery of Gas by the Seller to the Buyer as envisaged in accordance with this Agreement. 4.1.5 Any dispute between the Seller and the Buyer regarding the application of Article 4.1.4 will be referred to an Expert for determination in accordance with Article 30 and prior to the outcome of such determination the Seller will continue to design, construct and commission, maintain, repair or operate as appropriate and will not bring out of use, abandon or use for any other purposes any of the Seller’s Facilities which are the subject of such dispute.

4.2 The Buyer’s Facilities 4.2.1 The Buyer will (even if it is not Economic to do so) fully and properly design, construct, install and commission the Buyer’s Facilities prior to the Start Date. 4.2.2 Until the end of the Plateau Period the Buyer will (even if it is not Economic to do so) maintain, repair and operate the Buyer’s Facilities.

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4.2.3 From the end of the Plateau Period the Buyer will maintain, repair and operate the Buyer’s Facilities only if it is Economic to do so. 4.2.4 Notwithstanding any of Articles 4.2.1, 4.2.2 or 4.2.3 the Buyer will not be obliged to design, construct, install, commission, maintain, repair or operate any of the Buyer’s Facilities and will (subject to Article 4.2.5) be permitted on giving the Seller reasonable prior notice to bring out of use, abandon or use for any other purposes any of the Buyer’s Facilities which in the Buyer’s reasonable opinion do not materially contribute to the reception, processing or transportation of Gas by the Buyer as envisaged in accordance with this Agreement. 4.2.5 Any dispute between the Buyer and the Seller regarding the application of Article 4.2.4 will be referred to an Expert for determination in accordance with Article 30 and prior to the outcome of such determination the Buyer will continue to design, construct, commission, maintain, repair or operate as appropriate and will not bring out of use, abandon or use for any other purposes any of the Buyer’s Facilities which are the subject of such dispute.

4.3 Liaison between the Parties From the Execution Date until the Start Date the Parties will meet no less frequently than once every [insert number] days in order to keep each other informed with regard to the progress of the design, construction, installation, commissioning and interconnection of the Seller’s Facilities and the Pipeline (in the case of the Seller) and of the design, construction, installation, commissioning and interconnection of the Buyer’s Facilities (in the case of the Buyer).

4.4 Use of facilities 4.4.1 Use of the Seller’s Facilities for the production, transportation or delivery of Gas to persons other than the Buyer will be without prejudice to the covenants, obligations or liabilities of the Seller in accordance with this Agreement with respect to the sale or the delivery or the non-delivery of Gas to the Buyer. 4.4.2 Use of the Buyer’s Facilities for the reception, processing or transportation of Gas from persons other than the Seller will be without prejudice to the covenants, obligations or liabilities of the Buyer in accordance with this Agreement with respect to the purchase or the taking of delivery or the non-taking of delivery of Gas from the Seller.

4.5 Access to facilities 4.5.1 If the Seller has failed to deliver to the Buyer at the Delivery Point a quantity of Gas equal to the Nominated Quantity for a Nomination Period (whether Article 20 or Article 24 will apply in respect of such failure) then (subject to Article 4.5.3) the Seller will promptly upon receipt of notice given by the Buyer give or procure (as far as it is reasonably able to) access to the Seller’s Facilities and/or the Pipeline (as appropriate) for a reasonable number of representatives of the Buyer to examine the circumstances of the Seller’s failure to so deliver Gas. © 2023 Thomson Reuters.

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4.5.2 If the Buyer is unable to take delivery of Gas at the Delivery Point and has sought relief in accordance with Article 24 in respect of such inability then (subject to Article 4.5.3) the Buyer will promptly upon receipt of notice given by the Seller give or procure (as far as it is reasonably able to) access to the Buyer’s Facilities for a reasonable number of representatives of the Seller to examine the circumstances of the Buyer’s inability to take delivery of Gas. 4.5.3 The Buyer’s rights and interests in accordance with Article 4.5.1 and the Seller’s rights and interests in accordance with Article 4.5.2 will not apply where in respect of the Seller’s failure to deliver Gas or the Buyer’s inability to take delivery of Gas the Party to whose facilities access is being sought has sought relief in accordance with Article 24 and the grounds upon which such relief is sought do not relate in whole or in substantial part to the Seller’s Facilities and/or the Pipeline (in respect of the Buyer’s rights or interests in accordance with Article 4.5.1) or to the Buyer’s Facilities (in respect of the Seller’s rights or interests in accordance with Article 4.5.2). 4.5.4 A Party will promptly upon the receipt of a notice given by the other Party give or procure (as far as it is reasonably able to) access to the Buyer’s Facilities (in the case of the Buyer) or to the Seller’s Facilities (in the case of the Seller) for a reasonable number of representatives of that other Party to examine and confirm that: (i)a Party is complying with its covenants or obligations in accordance with Article 4.1 or Article 4.2; (ii)Scheduled Maintenance is being or has been performed in accordance with an applicable Maintenance Notification. 4.5.5 The rights, interests, covenants or obligations of the Parties in accordance with this Article 4.5 are without prejudice to the rights, interests, covenants or obligations of the Parties in accordance with Schedule 3 in respect of attendance at any verification of the Measuring Equipment. 4.5.6 The exercise by a Party of a right of access to any facilities in accordance with this Article 4.5 or in accordance with Schedule 3 will be at the sole risk and expense of the Party exercising such right of access.

4.6 Limitation of liabilities 4.6.1 The liability of the Seller for any failure to perform its obligations in accordance with this Article 4 will be limited to the liabilities which the Seller might otherwise have in accordance with Article 20 or Article 21 and the Seller will not otherwise be liable to the Buyer for such failure. 4.6.2 The liability of the Buyer for any failure to perform its obligations in accordance with this Article 4 will be limited to the obligations which the Buyer might otherwise have in accordance with Article 11 and the Buyer will not otherwise be liable to the Seller for such failure.

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4.6.3 No right to terminate this Agreement (whether expressly in accordance with this Agreement or implied by applicable law) will apply in favour of a Party in respect of the other Party’s failure to perform its obligations in accordance with this Article 4.

5. Gas Reserves 5.1 Certification of the Designated Sources As at the Execution Date the Certified Reserves comprise [insert number] mscf of Gas as evidenced by the Initial Reserves Certificate.

5.2 Dedication of the Designated Sources Throughout the Basic Term and subject to Article 18 and subject to Article 24.7.2: 5.2.1 the Seller dedicates the Designated Sources to exclusive use for the delivery of Gas to the Buyer at the Delivery Point in accordance with this Agreement; 5.2.2 the Seller will not produce Gas or permit Gas to be produced from the Designated Sources other than for sale and delivery to the Buyer in accordance with this Agreement.

5.3 Annual Reserves Report By the last day of [insert date] in each Contract Year the Seller will give to the Buyer a report (an Annual Reserves Report) which will in respect of the Designated Sources specify: 5.3.1 the aggregate quantities of Gas delivered at the Delivery Point in accordance with this Agreement by the last day of [insert date] of the preceding Contract Year; 5.3.2 any quantities of Gas utilised or consumed in accordance with Article 18; 5.3.3 any quantities of Gas sold or delivered to any Third Party in accordance with Article 24.7.2; 5.3.4

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the Seller’s good faith best estimate of the Remaining Dedicated Reserves.

5.4 Reserves Recalculation 5.4.1 At any time during the Delivery Period the Buyer may give notice to the Seller of the requirement that the Certified Reserves be recalculated (a Reserves Recalculation, where such notice will be called a Reserves Recalculation Notice). The Buyer may not give a Reserves Recalculation Notice within [insert number] days of having previously done so. All external costs associated with a Reserves Recalculation will be borne by the Buyer. 5.4.2 Within [insert number] days of the date that a Reserves Recalculation Notice is received by the Seller the Parties will meet and in good faith discuss and attempt to agree in writing upon a revised quantity of Remaining Dedicated Reserves. If within [insert number] days of the date that a Reserves Recalculation Notice is received by the Seller the Parties have failed to so agree upon such revised quantity of Remaining Dedicated Reserves then either Party may refer the matter to an Expert for determination in accordance with Article 32. 5.4.3 An Expert appointed in accordance with Article 5.4.2 will perform the Reserves Recalculation within a period of [insert number] days immediately following his appointment and the Seller will (unless the Seller is bound by preexisting confidentiality obligations to a Third Party with respect to such information and answers) make available all the information which such Expert may reasonably require and will answer any questions reasonably posed by such Expert and will give to the Buyer a copy of such information and answers together with a copy of the questions posed by such Expert. 5.4.4 The quantity of the Remaining Dedicated Reserves which are the result of a Reserves Recalculation will be conclusive and binding upon the Parties.

5.5 Further work obligations 5.5.1 Without prejudice to Article 4.1 (and, during the Plateau Period only, even if it is not Economic to do so) if at any time during the Delivery Period the Remaining Dedicated Reserves are or will be insufficient to enable the Seller to perform its covenants or obligations in accordance with this Agreement for the remainder of the Basic Term then the Seller will promptly execute or procure the execution of such further technically feasible work programmes as a Reasonable and Prudent Person would perform in the circumstances with the view to ensure that the Remaining Dedicated Reserves will be sufficient to enable the Seller to perform its covenants or obligations in accordance with this Agreement for the remainder of the Basic Term. Such work programmes will be conducted: (i)firstly in the Designated Sources within the Supply Area; (ii)secondly in any Additional Source. 5.5.2

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Where any work programmes performed in accordance with Article 5.5.1 have evidenced any additional Reserves then the Seller will comply with Article 5.6 in respect of such additional Reserves, provided that such additional Reserves will be added to the Designated Sources only to the extent required for the Seller to comply with Article 5.5.1.

5.6 Additional Sources At any time during the Basic Term the Seller may add an Additional Source to the Designated Sources by giving notice to the Buyer (an Additional Source Notice) which will contain in respect of each Additional Source: 5.6.1 the coordinates, well intervals and description to be included in Schedule 2; 5.6.2 a Reserves Certificate, and upon the date that such Additional Source Notice is received by the Buyer the Remaining Dedicated Reserves will be increased by the quantity of Reserves in the Additional Source certified in the Reserves Certificate applicable thereto and the Seller will modify Schedule 2 accordingly to include such Additional Source as a Designated Source.

5.7 Source Withdrawal Notices At any time during the Delivery Period the Seller may withdraw a Gas reservoir or other source of Gas from the Designated Sources (a Withdrawal Source) by giving notice to the Buyer (a Source Withdrawal Notice) provided that after such withdrawal the Remaining Dedicated Reserves will be sufficient to enable the Seller to perform its covenants or obligations in accordance with this Agreement for the remainder of the Basic Term. A Source Withdrawal Notice will contain in respect of each Withdrawal Source: 5.7.1 the coordinates, well intervals and description to be included in accordance with Schedule 2; 5.7.2 a Reserves Certificate, and upon the date that such Source Withdrawal Notice is received by the Buyer the Remaining Dedicated Reserves will be decreased by the quantity of Reserves in the Withdrawal Source certified in the Reserves Certificate applicable thereto and the Seller will modify Schedule 2 accordingly to remove such Withdrawal Source from the Designated Sources.

6. Gas Quantities 6.1 The DCQ In respect of each Gas Day in respect of each Contract Year during the Delivery Period the DCQ will, subject to adjustment in accordance with Article 6.2 or Article 23.1, be as set out in Schedule 4.

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6.2 The DCQ in the Decline Period 6.2.1 The Decline DCQ will be the Seller’s good faith best estimate of the highest aggregate DCQ that could be sustained in respect of each Contract Year during the Decline Period from the production of Gas from the Designated Sources reasonably expected to be in existence on the first Gas Day of such Contract Year. 6.2.2 As soon as reasonably practicable but in no event later than [insert number] days prior to the first day of [insert date] in the Contract Year during which the Seller reasonably believes that the Plateau Period will end the Seller will give a notice to the Buyer (the Decline DCQ Notice) which will specify the Decline DCQ which the Seller proposes will apply during the first Contract Year of the Decline Period. 6.2.3 Thereafter by no later than [insert number] days prior to the last day of each Contract Year the Seller will give notice to the Buyer of the Seller’s good faith best estimate of the Decline DCQ for the next Contract Year during the Decline Period. If the Seller fails to give such notice then the Decline DCQ for the next Contract Year during the Decline Period will be the Decline DCQ in effect in respect of the preceding Contract Year. 6.2.4 Within [insert number] days of the date of receipt of a Decline DCQ Notice for any Contract Year the Buyer may give a counter-notice to the Seller objecting to the proposed Decline DCQ and the said counter-notice will specify the Buyer’s good faith best estimate of the Decline DCQ applicable to the relevant Contract Year. 6.2.5 If the Buyer does not give a counter-notice in accordance with Article 6.2.4 then the Decline DCQ proposed by the Seller in accordance with Article 6.2.2 or Article 6.2.3 (as appropriate) will be the Decline DCQ applicable to the relevant Contract Year. 6.2.6 If the Buyer gives a counter-notice in accordance with Article 6.2.4 then the Parties will promptly meet and in good faith discuss and attempt to agree in writing the Decline DCQ for the relevant Contract Year and if the Parties are unable to so agree within [insert number] days after the date of receipt of the Buyer’s counter-notice then either Party may refer the matter to an Expert for determination in accordance with Article 30. 6.2.7 Whenever the Seller gives notice to the Buyer of a Decline DCQ in accordance with this Article 6 the Seller will also give to the Buyer its good faith best estimate of the Decline DCQ that will be applicable to each of the remaining Contract Years in the Delivery Period.

6.3 Maximum Daily Quantity Without prejudice to Article 8.1, the maximum quantity of Gas that the Buyer will be entitled to nominate for delivery and that the Seller will be obliged to deliver at the Delivery Point in accordance with this Agreement in respect of any Gas Day during the Delivery Period will be [insert number] % of the DCQ (the Maximum Daily Quantity or MDQ).

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6.4 Maximum quantity Except where otherwise agreed in writing between the Parties, the Seller will not be obliged to deliver to the Buyer an aggregate quantity of Gas: 6.4.1 in respect of the Basic Term, exceeding the Contract Quantity; 6.4.2 in respect of each Contract Year, exceeding the ACQ for that Contract Year.

6.5 Attributed order All quantities of Gas delivered by the Seller to the Buyer in accordance with this Agreement in respect of a Contract Year will be deemed to have been delivered in the following order: 6.5.1 firstly, to satisfaction of the ACQ; 6.5.2 then, to the delivery of Make Up Gas.

7. Commissioning Gas 7.1 Commissioning Gas obligation The Seller will in response to a request made by the Buyer use reasonable endeavours to deliver Gas to the Buyer at the Delivery Point during the Commissioning Period for the commissioning of the Buyer’s Facilities (Commissioning Gas).

7.2 Commissioning Gas Price and payment 7.2.1 All quantities of Commissioning Gas delivered by the Seller in accordance with this Article 7 will be paid for by the Buyer at the Commissioning Gas Price. 7.2.2 Payment by the Buyer to the Seller for all quantities of Commissioning Gas delivered by the Seller in accordance with this Article 7 will be made in accordance with Article 16.

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7.3 Commissioning Gas consequences 7.3.1 Neither Article 20 nor Article 21 will apply in respect of any quantities of Commissioning Gas delivered by the Seller or which the Seller fails to deliver to the Buyer at the Delivery Point. 7.3.2 Any quantities of Commissioning Gas delivered by the Seller in accordance with this Article 7 will not count toward satisfaction of the Buyer’s obligation to take delivery of any Annual Take or Pay Quantity but will count toward the Contract Quantity.

8. Excess Gas 8.1 Seller’s obligation The Seller will in response to a request made by the Buyer use reasonable endeavours to deliver Excess Gas to the Buyer at the Delivery Point.

8.2 Excess Gas Price All quantities of Excess Gas delivered to the Buyer by the Seller at the Delivery Point will be paid for by the Buyer at the Excess Gas Price applicable at the time such Excess Gas is delivered.

8.3 Excess Gas consequences 8.3.1 Excess Gas which is delivered by the Seller at the Delivery Point and which is paid for by the Buyer will count toward satisfaction of the Buyer’s obligation to take delivery of the Annual Take or Pay Quantity in the Contract Year in which such Excess Gas is taken delivery of and will count toward the Contract Quantity. 8.3.2 If any quantity of Gas would simultaneously be Make Up Gas and Excess Gas then such quantity of Gas will be paid for at a price equal to [insert number] % of the Contract Price which would otherwise be applicable at the time such quantity of Gas is being delivered (without prejudice to the Buyer’s right to take delivery of such Make Up Gas in accordance with Article 12).

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9. Custody, Title and Risk Transfers Custody of, title to and the risk of loss of or damage to all quantities of Gas to be delivered in accordance with this Agreement will pass from the Seller to the Buyer at the Delivery Point.

10. Taxes 10.1 The Seller’s liability to Taxes The Seller will (subject to Article 10.3) pay or procure the payment of all Taxes arising upstream of the Delivery Point and will indemnify the Buyer against any loss or liability which the Buyer incurs in respect of such Taxes.

10.2 The Buyer’s liability to Taxes The Buyer will pay or procure the payment of all Taxes arising at or downstream of the Delivery Point and will indemnify the Seller against any loss or liability which the Seller incurs in respect of such Taxes.

10.3 Goods and services tax The Buyer will be liable to pay any goods and services tax which is levied by the any Governmental Authority on the sale of Gas by the Seller.

11. Take or Pay 11.1 The Buyer’s obligation In respect of each Contract Year the Buyer will take delivery of and will pay for, or will pay for if not taken delivery of, a quantity of Gas which at a minimum will be equal to the Annual Take or Pay Quantity for that Contract Year.

11.2 The Annual Take or Pay Quantity In respect of each Contract Year the Annual Take or Pay Quantity will be a quantity of Gas equal to [insert number] % of the Adjusted ACQ for that Contract Year.

11.3 The Adjusted ACQ 11.3.1

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In respect of each Contract Year the Adjusted ACQ will (subject to Article 11.3.2) be the ACQ for that Contract Year after the deduction of the aggregate (without double counting) of the following quantities of Gas arising in respect of that Contract Year: (i)any quantity of Shortfall Gas; (ii)any quantity of Gas not delivered by the Seller or which the Buyer does not take delivery of at the Delivery Point because of a Force Majeure Event affecting the Seller or the Buyer (to the extent permitted in accordance with Article 27); (iii)any quantity of Gas not delivered by the Seller or which the Buyer does not take delivery of at the Delivery Point in respect of a Maintenance Day to the extent of the Maintenance Reduction applicable to such Maintenance Day; (iv)any quantity of Carry Forward Gas which has accrued from the preceding Contract Year and which has been carried forward in accordance with Article 13. 11.3.2 The Adjusted ACQ in respect of each Contract Year will never be less than zero.

11.4 The Annual Deficiency 11.4.1 If in respect of a Contract Year the Buyer has not taken delivery of and paid for a quantity of Gas which at a minimum is equal to the Annual Take or Pay Quantity for that Contract Year (where the quantity of Gas which the Buyer has not taken delivery of and paid for which is less than such Annual Take or Pay Quantity is called the Annual Deficiency) then the Buyer will pay to the Seller the Annual Take or Pay Payment in respect of such Annual Deficiency. 11.4.2 Any Annual Take or Pay Payment will be due and payable by the Buyer to the Seller in accordance with Article 16 in the Contract Year following the Contract Year in which the Annual Deficiency arose.

12. Make Up 12.1 Entitlement to Make Up Gas 12.1.1 If in any Contract Year there exists an Outstanding Annual Deficiency then (subject to this Article 12) when in such Contract Year the Buyer has taken delivery of and has paid for a quantity of Gas equal to the Annual Take or Pay Quantity for that Contract Year the Buyer may thereafter take delivery of a quantity of Gas (Make Up Gas) beyond such Annual Take or Pay Quantity up to a quantity equal to the lesser of the ACQ for that Contract Year and such Outstanding Annual Deficiency. 12.1.2

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Except where expressly provided to the contrary in this Agreement, any quantity of Make Up Gas which the Buyer has taken delivery of in accordance with Article 12.1.1 will be paid for by the Buyer at a Contract Price of US$0.00 per mscf. 12.1.3 If in respect of a Contract Year any part of an Outstanding Annual Deficiency has not been taken delivery of by the Buyer in accordance with this Article 12.1 the balance will be carried forward and added to or as the Outstanding Annual Deficiency for the next Contract Year.

12.2 Make Up Gas recovery 12.2.1 The Buyer will take delivery of Make Up Gas in the reduction of any Outstanding Annual Deficiency in the order in which the Annual Deficiencies which constitute the Outstanding Annual Deficiency were originally incurred. 12.2.2 The Buyer may only take delivery of Make Up Gas in respect of Annual Deficiencies which have accrued not more than [insert number] Contract Years prior to the Contract Year in which the Buyer is taking delivery of Make Up Gas except where: (i)the Buyer has been unable to take delivery of Make Up Gas in respect of such Annual Deficiencies for reasons of Force Majeure affecting the Seller or the Buyer (in each case to the extent permitted in accordance with Article 24); (ii)the Seller has failed to deliver Make Up Gas; (iii)Make Up Gas which would have been delivered in respect of such Annual Deficiencies is or would be OffSpecification Gas, in which event such Make Up Gas will be carried forward and added to the quantity of Make Up Gas which the Buyer will, subject to this Article 12, be entitled to take delivery of in the next Contract Year. 12.2.3 Where in any Contract Year a quantity of Gas is available to be taken delivery of by the Buyer as Make Up Gas and there is simultaneously an outstanding Monthly Shortfall Gas Aggregate then the Buyer will in the first instance take delivery of such quantity of Gas as Make Up Gas and the Monthly Shortfall Gas Aggregate will thereafter apply when the Buyer’s right to take delivery of Make Up Gas in respect of that Contract Year has ended. 12.2.4 This Article 12 is without prejudice to the Buyer’s rights and interests in accordance with Article 27.8 in respect of any Outstanding Annual Deficiency.

13. Carry Forward 13.1 Carry Forward Gas

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If in a Contract Year the Buyer has taken delivery of and has paid for a quantity of Gas which is greater than the Annual Take or Pay Quantity for that Contract Year then (subject to Article 13.2 and/or Article 13.3) such additional quantity of Gas will be classified as Carry Forward Gas.

13.2 ACQ adjustment Any quantity of Carry Forward Gas which has accrued in a Contract Year will be applied as a downward adjustment to the ACQ for the next Contract Year in accordance with Article 11.3.1(iv), provided that the quantity of Carry Forward Gas which may be so applied as an adjustment to the ACQ will be limited to a quantity of Gas equal to the ACQ for the Contract Year in which the quantity of Carry Forward Gas accrued multiplied by [insert number] % and the Buyer will have no further rights or interests in respect of any quantity of Carry Forward Gas which has accrued in a Contract Year beyond such limit.

13.3 Make Up Gas and Carry Forward Gas If in a Contract Year the Buyer has taken delivery of and has paid for a quantity of Gas equal to the Annual Take or Pay Quantity for that Contract Year and the Buyer thereafter takes delivery of any further quantity of Gas: 13.3.1 where there is an Outstanding Annual Deficiency then Article 12 will apply to that further quantity of Gas; 13.3.2 where there is no Outstanding Annual Deficiency then such further quantity of Gas will be Carry Forward Gas, to which this Article 13 will apply.

14. Contract Price 14.1 Determination of the Contract Price 14.1.1 The Contract Price is expressed in US$ per mscf of Gas and will be determined by the Seller in respect of each Contract Year in accordance with this Article 14. 14.1.2 The Contract Price in respect of each Contract Year will be P1 where: P1 = P o 1 + [(0.5 x GO/ GO o ) + (0.5 x FO x FO o )] where: P o 1 : US$ [insert number] per mscf of Gas; GO : the arithmetic average of the monthly prices of gas oil expressed in US$ per metric tonne as published by [insert publication] for the consecutive period of [insert number] days ending [insert number] days prior to the first day of the Adjustment Month;

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GO o

:

FO

:

FO o

:

the arithmetic average of the monthly prices of gas oil expressed in US$ per metric tonne for the period [insert period] which will be [insert value]; the arithmetic average of the monthly prices of fuel oil expressed in US$ per metric tonne as published by [insert publication] for the consecutive period of [insert number] days ending [insert number] days prior to the first day of the Adjustment Month; the arithmetic average of the monthly prices of fuel oil expressed in US$ per metric tonne for the period [insert period] which will be [insert value].

14.1.3 By no later than the last day of each month of [insert month] during the Basic Term (where each such month of [insert month] is called the Adjustment Month): (i)the Contract Price will be determined by the Seller in accordance with Article 14.1.2 for the then current Contract Year to be effective from the first day of the Adjustment Month until the last day of the Contract Year in which the Adjustment Month falls; (ii)the Seller will give notice to the Buyer of the Contract Price so determined in accordance with Article 14.1.3(i). 14.1.4 Where the first Contract Year commences on or after the last day of [insert date] then the Contract Price for that first Contract Year will be fixed at US$ [insert number] per mscf of Gas.

14.2 Availability of information 14.2.1 If at any time during the Basic Term a source of information used to determine an Index or an Index itself becomes unavailable or inappropriate then the Parties will promptly meet and in good faith discuss and attempt to agree in writing upon a suitable alternative replacement for such source of information or for such Index. 14.2.2 If the Parties are unable to so agree upon a suitable alternative replacement for such source of information or for such Index then either Party may refer the matter to an Expert for determination in accordance with Article 30.

14.3 Application of the Contract Price Except where expressly provided otherwise in this Agreement all Gas delivered in accordance with this Agreement will be paid for at the Contract Price applicable at the time at which such Gas is delivered by the Seller at the Delivery Point.

15. Relief of Hardship 15.1 Relief of hardship

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If at any time during the Basic Term a Party reasonably believes that there has been a change in the economic circumstances relating to this Agreement and in consequence thereof such Party is suffering substantial economic hardship (other than where such substantial economic hardship is or was caused by the failure of such Party to act in accordance with the Standard of a Reasonable and Prudent Person) then that Party will give notice thereof to the other Party and the Parties will promptly meet and in good faith discuss and attempt to agree in writing upon a review of the basis of the determination of the Contract Price or upon such other changes to this Agreement as may reasonably be required in the circumstances to alleviate such substantial economic hardship.

15.2 Resolution of disputes If the Parties are unable to agree upon a review of the basis of the determination of the Contract Price or such other changes to this Agreement in accordance with Article 15.1 within [insert number] days of the date of receipt by a Party of a notice given by a Party in accordance with Article 15.1. then either Party may refer to an Expert for determination in accordance with Article 30: 15.2.1 that substantial economic hardship has arisen; 15.2.2 of what (if any) review of the basis of the determination of the Contract Price or such other changes to this Agreement may reasonably be required in the circumstances to alleviate such substantial economic hardship.

15.3 Limitations 15.3.1 Any notice given by a Party in accordance with Article 15.1 may be withdrawn at any time by that Party. 15.3.2 Any review of the basis of the determination of the Contract Price or such other changes to this Agreement in accordance with this Article 15 which is agreed between the Parties in accordance with Article 15.1 or which is determined by an Expert following a reference made by a Party in accordance with Article 15.2 will (unless the Parties otherwise agree in writing) only be effective from the date of the agreement of the Parties or of such Expert’s determination and will not have retrospective effect. 15.3.3 Once a notice has been given by a Party in accordance with Article 15.1 no further notice may be given by that Party in accordance with Article 15.1 within [insert number] months of the date of receipt by the other Party of such notice. 15.3.4 Each Party may give not more than [insert number] notices in accordance with Article 15.1 during the Basic Term.

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16. Invoicing and Payment 16.1 The Monthly Statement The Seller will prepare and will give to the Buyer by not later than the [insert number] day after the end of each Contract Month a statement (the Monthly Statement) which will show in respect of the preceding Contract Month the following information: 16.1.1 the applicable Contract Price; 16.1.2 the Nominated Quantity for each Nomination Period; 16.1.3 the total quantity of Gas and the GHV of such Gas delivered to the Buyer at the Delivery Point in respect of each Nomination Period; 16.1.4 any adjustments to the ACQ due for the purpose of calculating the Adjusted ACQ and the reasons for such adjustments; 16.1.5 any quantity of Gas classified as Shortfall Gas, the quantity of Gas delivered to the Buyer at the Delivery Point at the Shortfall Gas Price and the outstanding balance of the Monthly Shortfall Gas Aggregate; 16.1.6 any quantity of Excess Gas delivered to the Buyer at the Delivery Point and the Excess Gas Price applicable to such quantity of Excess Gas; 16.1.7 any quantity of Make Up Gas delivered to the Buyer at the Delivery Point and the outstanding balance of the Outstanding Annual Deficiency; 16.1.8 any quantity of Carry Forward Gas delivered to the Buyer at the Delivery Point; 16.1.9 any applicable Taxes due for payment by the Buyer; 16.1.10

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the net amount payable by the Buyer to the Seller after taking account of all the foregoing matters set out in this Article 16.1; 16.1.11 any other amount due and owing from one Party to the other in accordance with this Agreement; 16.1.12 the amount of payment due in US$ and in any currency other than US$ where Clause 16.3.3 applies.

16.2 The Annual Reconciliation Statement The Seller will prepare and will give to the Buyer by not later than the [insert number] day after the end of each Contract Year a statement (the Annual Reconciliation Statement) which will show in respect of the preceding Contract Year the following information: 16.2.1 the applicable Contract Price; 16.2.2 the total quantity of Gas and the GHV of such Gas delivered to the Buyer at the Delivery Point; 16.2.3 the cumulative quantities of Gas for which the Buyer should have paid at the prices prescribed therefor and the cumulative quantities of Gas for which the Buyer has in fact paid and the prices paid therefor; 16.2.4 the cumulative adjustments to the ACQ due for the purpose of calculating the Adjusted ACQ and the reasons for such adjustments; 16.2.5 the amount of any Annual Take or Pay Payment due from the Buyer; 16.2.6 the balance of the Monthly Gas Shortfall Aggregate outstanding as at the last day of the preceding Contract Year; 16.2.7 the cumulative quantity of any Make Up Gas delivered to the Buyer at the Delivery Point and the balance of any Outstanding Annual Deficiency outstanding as at the last day of the preceding Contract Year; 16.2.8 the cumulative quantity of Carry Forward Gas delivered to the Buyer at the Delivery Point; 16.2.9

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any applicable Taxes due for payment by the Buyer; 16.2.10 the net amount payable by the Buyer to the Seller after taking account of all the foregoing matters set out in this Article 16.2; 16.2.11 any other amount due and owing from one Party to the other in accordance with this Agreement; 16.2.12 the amount of payment due in US$ and in any currency other than US$ where Clause 16.3.3 applies.

16.3 Payment by the Buyer and the Seller 16.3.1 By not later than [insert number] days after the day on which the Buyer has received the Monthly Statement the Buyer will make payment to the Seller of the net amount determined to be due to the Seller in accordance with such Monthly Statement. 16.3.2 By not later than [insert number] days after the day on which the Buyer has received the Annual Reconciliation Statement the Buyer will make payment to the Seller of the net amount determined to be due to the Seller in accordance with such Annual Reconciliation Statement. 16.3.3 All payments due from one Party to the other in accordance with this Agreement will be made in US$. If a Party is or becomes legally obliged to make payment in a currency other than US$ then that Party will make payment of an amount in any other currency that would result in the requisite full amount being received by the Party due to receive payment upon the conversion of that other currency into US$.

16.4 Further payment provisions 16.4.1 If any amount has been identified as due and owing from the Seller to the Buyer in accordance with this Agreement then the Buyer will give the Seller a fully detailed invoice in respect of such amount. 16.4.2 By not later than [insert number] days after the day on which the Seller has received an invoice from the Buyer in accordance with Article 16.4.1 the Seller will make payment to the Buyer of the amount due in accordance with such invoice. 16.4.3

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All payments due in accordance with this Agreement will be made by electronic funds transfer to the appropriate bank account specified below or to such other bank account as a Party may from time to time give notice of to the other Party: Payments due to the Seller: Bank name: Account number: Account name: Payments due to the Buyer: Bank name: Account number: Account name:

[insert] [insert] [insert] [insert] [insert] [insert]

16.4.4 The liability of a Party to make payment in accordance with this Agreement will be discharged upon the receipt of that payment by the Party due to receive such payment into its specified bank account. 16.4.5 Should the due date for any payment be a date other than a Business Day then payment will be made on the Business Day nearest to the due date for payment and if the due date for payment falls equally between two Business Days then payment will be made on the Business Day immediately following the due date for payment.

16.5 Set-off 16.5.1 Subject to Article 16.5.2 the Buyer will pay in full all amounts due for payment by the Buyer to the Seller in accordance with this Agreement and will not make any set-off or deduction against any such amounts. 16.5.2 Subject to Article 16.5.3 the Buyer will be entitled to set-off against any amounts which are otherwise due for payment by the Buyer to the Seller in accordance with this Agreement any amount which is claimed by the Buyer to be due and payable by the Seller to the Buyer in accordance with this Agreement where such amount: (i)has been invoiced for by the Buyer in accordance with Article 16.4.1 and has not been paid when due by the Seller in accordance with Article 16.4.2; (ii)is agreed in writing between the Parties or is resolved or determined in accordance with Article 29 or Article 30 to be due from the Seller to the Buyer. 16.5.3 The right of the Buyer to set-off in accordance with Article 16.5.2 is subject to the following limitations: (i)in respect of each Contract Month the Buyer may only set-off up to an aggregate amount equal to [insert number] % of the amount due for payment from the Buyer to the Seller in accordance with the Monthly Statement for the preceding Contract Month, provided that any amount that the Buyer would otherwise be entitled to set-off in accordance with Article 16.5.2 but which is in excess of the amount permitted to be set-off in accordance with this Article 16.5.3(i) may (subject always to this Article 16.5.3(i)) be carried forward and set-off against a subsequent Monthly Statement;

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(ii)the Buyer may not set-off any amount which the Seller has given notice of its intention to dispute in accordance with Article 16.8.

16.6 Failure to make payment 16.6.1 If a Party fails to make payment of any amount when due in accordance with this Agreement then: (i)interest on such amount will accrue at a rate equal to LIBOR (at the rate in force on the day when such payment was due) plus [insert number] % (to accrue daily and to be compounded annually) from the day when such payment was due until the day when such payment is made; (ii)where the Buyer has failed to make payment the Seller may seek to recover such amount in accordance with the Buyer’s Guarantee (where the Buyer’s Guarantee has been provided in accordance with Article 17); (iii)either Party may commence proceedings in a court of competent jurisdiction against the other Party for recovery of such amount as a debt. 16.6.2 If a failure of the Buyer to make payment of any amount due in accordance with this Agreement continues for [insert number] days beyond the day upon which such payment was due and the aggregate of any amounts which the Buyer has failed to pay and which are outstanding on such day equals or exceeds the Threshold Amount then the Seller may, on giving not less than [insert number] days’ notice to the Buyer of its intention so to do, suspend the delivery of Gas to the Buyer until such payment is made and/or terminate this Agreement. 16.6.3 The rights and interests of the Seller in accordance with Article 16.6.1 or Article 16.6.2 will not apply in respect of the failure of the Buyer to make payment of any amount due in accordance with this Agreement where the Buyer has exercised or is exercising its rights and interests in accordance with Article 16.5.2 in respect of such amount. 16.6.4 The rights and interests of either Party in accordance with Article 16.6.1 or the rights and interests of the Seller in accordance with Article 16.6.2 will not apply where the amount which has not been paid is the subject of a notice of an intention to dispute given in accordance with Article 16.8.

16.7 Verification 16.7.1 For a period of the first [insert number] days after the end of each Contract Year a Party may request the other Party to produce such evidence as may reasonably be required by the requesting Party to verify the accuracy of any previous invoice, statement or computation made in respect of such Contract Year. 16.7.2 If any evidence produced in accordance with Article 16.7.1 reveals any inaccuracy in any previous invoice, statement or computation then (at the option of the Party to whom payment of an amount may be due in respect of such inaccuracy) an invoice for the necessary adjustment to such invoice, statement or computation will be prepared by that Party and given © 2023 Thomson Reuters.

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to the other Party for payment by not later than [insert number] days after the day on which such invoice is received together with interest at on such amount at a rate equal to LIBOR (at the rate in force on the day when such inaccuracy first arose) plus [insert number] % (to accrue daily and to be compounded annually) from the day when such inaccuracy first arose until the day when such payment is made.

16.8 Disputed amounts 16.8.1 If all or part of any amount which is due for payment in accordance with this Agreement is the subject of a genuine dispute between the Parties then the Party disputing that amount will give notice to the other Party of the amount in dispute and the reasons for the dispute and on or before the due date for payment will make payment of any undisputed part of the amount which is due for payment (if any) to the Party to whom payment is due and will pay the disputed part of the amount which is due for payment into the Third Party Account. 16.8.2 Any amount which is due for payment in accordance with this Agreement may only validly be disputed if the Party disputing the amount has given notice to the other Party within [insert number] days of receipt by the Party disputing the amount of any invoice in respect thereof. 16.8.3 For a period of [insert number] days from the date of receipt by a Party of the notice of any disputed amount in accordance with Article 16.8.1 the Parties will meet and in good faith discuss and attempt to agree in writing upon a settlement of the disputed amount. If the disputed amount is not resolved within such period of [insert number] days then the disputed amount may thereafter be referred by either Party to an Expert for determination in accordance with Article 30. 16.8.4 After the determination of a disputed amount by an Expert in accordance with Article 16.8.3 or after any earlier agreement in writing between the Parties any amount so determined or so agreed to be due for payment by a Party will be released from the Third Party Account to the Party to which payment is due together with any interest earned on the disputed amount in the Third Party Account during the period in which the disputed amount was held in the Third Party Account. 16.8.5 Following the release of any amount in accordance with Article 16.8.4 any outstanding balance in the Third Party Account will be returned to the Party originally making payment of such amount into the Third Party Account together with any interest earned on that balance in the Third Party Account during the period in which that amount was held in the Third Party Account.

17. Buyer’s Guarantee 17.1 The Buyer warrants and represents to the Seller that as at the Execution Date a credit rating of [insert rating] has been issued in respect of the Buyer by the Rating Agency (the Credit Rating).

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17.2 If at any time during the Basic Term the Credit Rating is revised by the Rating Agency to a credit rating of or below [insert rating] then the Buyer will promptly give notice of such revision to the Credit Rating to the Seller.

17.3 Whether or not the Buyer gives notice to the Seller in accordance with Article 17.2, at any time during the Basic Term and at the Seller’s option the Buyer will within [insert number] days of a request by the Seller provide one of the following: (i)a guarantee from an Acceptable Guarantor in a form acceptable to the Buyer (acting reasonably) whereby the Acceptable Guarantor irrevocably and unconditionally guarantees in favour of the Seller the performance of all of the Buyer’s covenants or obligations in accordance with this Agreement; (ii)an irrevocable standby letter of credit in favour of the Seller for a maximum amount of US$ [insert amount] issued by an Acceptable Bank in a form acceptable to the Seller (acting reasonably), (where such guarantee or letter of credit will be the Buyer’s Guarantee).

17.4 If the Buyer fails to provide the Buyer’s Guarantee when required in accordance with Article 17.3 then the Seller may, on giving the Buyer not less than [insert number] days’ notice of its intention so to do, suspend the delivery of Gas to the Buyer until the Buyer’s Guarantee is provided by the Buyer and/or terminate this Agreement.

18. Seller’s Reservations 18.1 Seller’s reservations During the Basic Term the Seller will have the right to decide the manner in which it conducts operations for the production of Gas at the Seller’s Facilities and the manner of transportation of Gas upstream of the Delivery Point and will have the right: 18.1.1 to use Gas produced from the Designated Sources for the operation of the Seller’s Facilities and to flare, vent or reinject Gas; 18.1.2 to process Gas produced from the Designated Sources for the removal of constituents other than methane (except such minimum amounts of methane as are removed from the Gas in removing such other constituents); 18.1.3 to use Gas produced from the Designated Sources for Gas lift operations, pressure maintenance or recycling operations;

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18.1.4 to freely commingle, substitute and allocate Gas produced from the Designated Sources with any other Gas; 18.1.5 to pool, unitise or combine all or any part of the Designated Sources and/or the Supply Area with any other gas fields or reservoirs.

18.2 Rights without prejudice The exercise by the Seller of its rights and interests in accordance with Article 18.1 will be without prejudice to the covenants, obligations or liabilities of the Seller in accordance with this Agreement.

19. Nominations 19.1 Nominated Quantity 19.1.1 A Nominated Quantity means in respect of a Nomination Period the quantity of Gas which has been nominated or deemed nominated by the Buyer in accordance with this Article 19 for delivery by the Seller at the Delivery Point (which term will include any Nominated Quantity which has been validly varied in accordance with Article 19.3). 19.1.2 The Nominated Quantity in respect of each Nomination Period will not vary by more than [insert number] % of the Nominated Quantity for the preceding Nomination Period.

19.2 Daily Notices 19.2.1 The Buyer will by [insert time] on each day give notice to the Seller of the Nominated Quantity required in respect of each Nomination Period for the next Gas Day (a Daily Notice). 19.2.2 The aggregate of the Nominated Quantities which are specified by the Buyer in a Daily Notice may be zero but will not be less than [insert amount] mscf and will not be greater than the Maximum Daily Quantity. 19.2.3 Where a Maintenance Notification has been given by a Party in respect of a Gas Day then the aggregate of the Nominated Quantities which are specified by the Buyer in a Daily Notice in respect of that Gas Day will not exceed the Maintenance Reduction applicable to such Maintenance Notification.

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19.2.4 If a Daily Notice is not given by the Buyer in accordance with Article 19.2.1 then the Buyer will be deemed to have given a Daily Notice in accordance with Article 19.2.1 in which each Nominated Quantity for the next Gas Day will equal each Nominated Quantity specified in the Daily Notice given in accordance with Article 19.2.1 (or deemed to have been given in accordance with this Article 19.2.4) in respect of the Gas Day preceding the Gas Day to which the original Daily Notice would have applied.

19.3 Variation Notices 19.3.1 The Buyer may at any time give notice to the Seller of its requirement to vary a Nominated Quantity (a Variation Notice), provided that (without prejudice to Article 8.1) to be valid a Variation Notice will satisfy the conditions set out in Article 19.3.2. 19.3.2 In order to validly vary any Nominated Quantity the following conditions will apply: (i)if the Buyer requires a change of [insert number] % or less to a Nominated Quantity then the Variation Notice therefor will give the Seller a minimum of [insert number] hours’ notice of such change; (ii)if the Buyer requires a change of more than [insert number] % to a Nominated Quantity then the Variation Notice therefor will give the Seller a minimum of [insert number] hours’ notice of such change. 19.3.3 In respect of a period of notice required in accordance with Article 19.3.2 such period of notice will begin to run from the start of the hour following the hour in which the Variation Notice is given to the Seller and any variation of a Nominated Quantity will not become effective until the expiry of the relevant period of notice.

19.4 Good faith nominations If the Seller has given a Gas Deficiency Notice to the Buyer then the Buyer will not until such time as the Seller has given a Gas Deficiency Remediation Notice to the Buyer give a Daily Notice nor a Variation Notice for a quantity of Gas greater than the quantity of Gas represented by the Nominated Quantity in force at the time when the Seller gave such Gas Deficiency Notice to the Buyer.

19.5 Daily, Weekly and Monthly Estimates 19.5.1 At the same time as the Buyer gives a Daily Notice in accordance with Article 19.2 the Buyer will give to the Seller the Buyer’s good faith best estimate of the required quantities of Gas to be delivered to the Buyer by the Seller at the Delivery Point for the Gas Day following the Gas Day specified in the Daily Notice (the Daily Estimate). 19.5.2

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By no later than [insert time] on the [insert number] day of each Week the Buyer will give to the Seller the Buyer’s good faith best estimate of the required quantities of Gas to be delivered to the Buyer by the Seller at the Delivery Point for each of the [insert number] Gas Days following the Gas Day to which the Daily Notice relates (the Weekly Estimate). 19.5.3 By no later than [insert time] on the [insert number] day of each Contract Month the Buyer will give to the Seller the Buyer’s good faith best estimate of the required quantities of Gas to be delivered to the Buyer by the Seller at the Delivery Point during the next Contract Month (the Monthly Estimate).

19.6 Format and service of notices Each Daily Notice, Variation Notice, Daily Estimate, Weekly Estimate and Monthly Estimate: 19.6.1 will be prepared in such format as the Seller may reasonably require and will from time to time notify to the Buyer; 19.6.2 will be given by the Buyer to the Seller by e-mail in accordance with Article 32.

20. Shortfall 20.1 Shortfall Gas 20.1.1 If in respect of any Nominated Quantity the Seller has failed to deliver to the Buyer at the Delivery Point a quantity of Gas which is at least equal to that Nominated Quantity then (subject to Article 20.2) the quantity of Gas equal to the difference between the quantity of Gas which the Seller has delivered to the Buyer at the Delivery Point (if any) and that Nominated Quantity will be classified as Shortfall Gas and the term Shortfall will be construed accordingly. 20.1.2 If in respect of a request made by the Buyer for the delivery of Excess Gas in accordance with Article 8.1 the Seller has agreed to deliver Excess Gas to the Buyer at the Delivery Point then (subject to Article 20.2) any quantity of Excess Gas which the Seller has failed to so deliver will be classified as Shortfall Gas and the term shortfall will be construed accordingly.

20.2 Exceptions from Shortfall Gas The definition of Shortfall Gas will not include any quantity of Gas: 20.2.1 which the Seller has delivered to the Buyer at the Delivery Point but which the Buyer has not taken delivery of;

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20.2.2 not delivered by the Seller to the Buyer: (i)which the Seller or the Buyer is entitled to claim relief for in accordance with Article 24; (ii)as a result of any act or omission of the Buyer; (iii)in respect of a Maintenance Day to the extent of the Maintenance Reduction applicable to such Maintenance Day; (iv)during the Commissioning Period; (v)where the Seller is exercising its rights and interests in accordance with Article 24.7.2 (subject to the limitations set out in Article 24.7.2); (vi)after the Seller has given a Gas Deficiency Notice to the Buyer (but solely in respect of the quantity of Gas represented by a Nominated Quantity which is greater than the quantity of Gas represented by the Nominated Quantity in force at the time when the Seller gave such Gas Deficiency Notice to the Buyer); (vii)except where the Seller otherwise agrees in writing, where the delivery of such Gas by the Seller to the Buyer would cause a breach of Article 6.4; (viii)which is within the Shortfall Gas Tolerance (subject to the limitations set out in Article 20.3); (ix)where the Seller is exercising its rights and interests in accordance with Article 16.6.2; (x)where the quantity of Gas not delivered by the Seller to the Buyer at the Delivery Point would be Make Up Gas; (xi)which would be any quantity of Gas (or alternative petroleum products and/or hydrocarbon fractions) not delivered by the Seller to the buyer during the Shortfall Gas Extension Period or during the Make Up Gas Extension Period.

20.3 The Shortfall Gas Tolerance 20.3.1 The Shortfall Gas Tolerance will in respect of any Nominated Quantity be any quantity of Gas which is equal to or less than [insert number] % of the quantity of Gas represented by that Nominated Quantity. 20.3.2 If in respect of any Nominated Quantity the Seller has failed to deliver to the Buyer at the Delivery Point a quantity of Gas at least equal to that Nominated Quantity and the resultant quantity of Shortfall Gas is within the Shortfall Gas Tolerance then (subject to Article 20.3.4) the entire quantity of Gas which the Seller has so failed to deliver will not be Shortfall Gas. 20.3.3 If in respect of any Nominated Quantity the Seller has failed to deliver to the Buyer at the Delivery Point a quantity of Gas at least equal to that Nominated Quantity and the resultant quantity of Shortfall Gas is greater than the Shortfall Gas Tolerance then the entire quantity of Gas which the Seller has so failed to deliver will be Shortfall Gas. 20.3.4

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Where in any Contract Year the aggregate quantity of Gas which would otherwise be classified as Shortfall Gas but for the application of the Shortfall Gas Tolerance in accordance with Article 20.3.2 becomes equal to or greater than [insert number] % of the ACQ for such Contract Year then Article 20.3.2 will cease to apply and will have no further effect for the remainder of that Contract Year.

20.4 The Buyer’s remedy for Shortfall Gas 20.4.1 If in respect of a Contract Month any quantity of Shortfall Gas arises then: (i)the aggregate quantity of Gas classified as Shortfall Gas in respect of that Contract Month will be called the Monthly Shortfall Gas Aggregate; (ii)after a Monthly Shortfall Gas Aggregate has arisen then the first quantities of Gas delivered by the Seller to the Buyer at the Delivery Point during the said Contract Month (other than Gas which would constitute Make Up Gas (to which Article 12.2.3 will apply)) up to the amount of the Monthly Shortfall Gas Aggregate will be paid for by the Buyer at the Shortfall Gas Price; (iii)to the extent that in any Contract Month the Monthly Shortfall Gas Aggregate exceeds the quantity of Gas delivered in such Contract Month to which Article 20.4.1(ii) would apply then the balance will be carried forward and added to the Monthly Shortfall Gas Aggregate for the next Contract Month or Contract Months (as the case may require). 20.4.2 The Buyer will not be obliged to make payment to the Seller for any quantity of Shortfall Gas. 20.4.3 The Buyer will be entitled to an adjustment to the ACQ in accordance with Article 11.3.1(i) for any quantity of Shortfall Gas.

20.5 The Shortfall Gas Price 20.5.1 The Shortfall Gas Price in respect of any quantity of Shortfall Gas will be [insert number] % of the Contract Price applicable at the time that such quantity of Shortfall Gas arose. 20.5.2 Where any quantity of Excess Gas is due to be delivered by the Buyer which would be classified as Shortfall Gas, or where any quantity of Gas is due to be paid for at the Shortfall Gas Price and would simultaneously be Excess Gas, then the Shortfall Gas Price will be [insert number] % of the Excess Gas Price applicable to that quantity of Excess Gas. 20.5.3 The Parties agree that the Shortfall Gas Price is a liquidated damage for which the Seller will be liable regardless of the level of the Buyer’s loss or liability which results from a Shortfall.

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21. Quality and Off-Specification Gas 21.1 Specification and Gas pressure 21.1.1 The Seller will ensure that (except as otherwise permitted in accordance with this Agreement) all quantities of Gas delivered or to be delivered by the Seller to the Buyer at the Delivery Point will at the Delivery Point conform to the Specification. 21.1.2 The Seller will ensure that throughout the Basic Term the Delivery Pressure will be in a range of [insert number] to [insert number] Pascals. 21.1.3 The Buyer will ensure that throughout the Basic Term the Downstream Pressure will be in a range of [insert number] to [insert number] Pascals.

21.2 Notice of Off-Specification Gas 21.2.1 If any quantity of Gas to be delivered by the Seller to the Buyer at the Delivery Point in accordance with this Agreement fails or is anticipated by the Seller to fail to conform to the Specification (Off-Specification Gas) the Seller will promptly give notice to the Buyer detailing the failure or anticipated failure of the Off-Specification Gas to meet the Specification, the reasons for such failure (if then known) and the Seller’s good faith best estimate of the likely duration of such failure. 21.2.2 The Buyer will give notice to the Seller promptly if the Buyer becomes aware prior to receiving the Seller’s notice in accordance with Article 21.2.1 that Off-Specification Gas has been or may be delivered by the Seller to the Buyer at the Delivery Point in accordance with this Agreement. 21.2.3 The Seller will perform such remedial works as would be performed by a Reasonable and Prudent Person to ensure that any quantity of Gas which is or which may be Off-Specification Gas will at the Delivery Point will conform to the Specification. 21.2.4 The Seller will have no liability and the Buyer will have no remedy in accordance with this Agreement in respect of any quantity of Off-Specification Gas which is caused by any act or omission of the Buyer.

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21.3 Refusal to take delivery of Off-Specification Gas 21.3.1 The Buyer will use reasonable endeavours to take delivery of but may (subject to compliance with that obligation) refuse to take delivery of any quantity of Off-Specification Gas delivered or to be delivered by the Seller to the Buyer at the Delivery Point, provided that the Buyer will promptly give notice to the Seller of whether the Buyer will take delivery of or will refuse to take delivery of such Off-Specification Gas at the Delivery Point and of the reasons for any refusal. 21.3.2 The taking of delivery by the Buyer of any quantity of Off-Specification Gas delivered by the Seller to the Buyer at the Delivery Point will not prejudice the Buyer’s rights and interests in accordance with this Article 21 to refuse to take delivery of any subsequent quantity of Off-Specification Gas delivered or to be delivered by the Seller to the Buyer at the Delivery Point. 21.3.3 Any quantity of Off-Specification Gas delivered or to be delivered by the Seller to the Buyer at the Delivery Point which the Buyer has refused to take delivery of will be deemed to be Shortfall Gas (subject to Article 20.2 but without the application of the exception from the definition of Shortfall Gas set out in Article 20.2.2(viii)).

21.4 Knowingly taking delivery of Off-Specification Gas If the Buyer takes delivery of any quantity of Off-Specification Gas at the Delivery Point and the Buyer was aware of the nature of such Off-Specification Gas prior to so taking delivery then (provided there is no material deviation from the nature of the original off-specification event prior to or during such taking of delivery) such Off-Specification Gas will be deemed to be Gas which conforms to the Specification and the Seller will have no liability and the Buyer will have no remedy in accordance with this Agreement in respect of such Off-Specification Gas.

21.5 Unknowingly taking delivery of Off-Specification Gas If the Buyer takes delivery of any quantity of Off-Specification Gas and the Buyer was not aware of the nature of such Off-Specification Gas prior to so taking delivery then: 21.5.1 where the Seller was unable to utilise such quantity of Off-Specification Gas in the ordinary course of its business then such quantity of Off-Specification Gas will be deemed to be Shortfall Gas (subject to Article 20.2 but without the application of the exception from the definition of Shortfall Gas set out in Article 20.2.2(viii)); 21.5.2 the Seller will indemnify the Buyer against any loss or liability incurred by the Buyer in connection with any physical damage to the Buyer’s Facilities arising in consequence of such Off-Specification Gas.

21.6 Shortfall Gas and Off-Specification Gas If any quantity of Gas is or may be Off-Specification Gas at the Delivery Point because such Gas does not fulfil the requirements of section (6) or section (7) of Schedule 5 then the Seller’s liability in respect of such Gas will be determined solely in accordance with this Article 21 and Article 20 will not apply (except where this Article 21 so requires). © 2023 Thomson Reuters.

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21.7 Delivery of Gas in a commingled stream Without prejudice to the other provisions of this Article 21, if Gas to be delivered in accordance with this Agreement forms part of a commingled stream at the Delivery Point then: 21.7.1 if the commingled stream does not conform to the Specification at the Delivery Point then Gas delivered in accordance with this Agreement will be deemed to be Off-Specification Gas for the purposes of this Agreement; 21.7.2 if the commingled stream does conform to the Specification at the Delivery Point then Gas delivered in accordance with this Agreement will be deemed not to be Off-Specification Gas for the purposes of this Agreement.

21.8 Expert determination Any dispute between the Parties concerning the application of this Article 21 will be referred to an Expert for determination in accordance with Article 30.

22. Measurement The rights, interests, covenants and obligations of the Parties in respect of the measurement of Gas delivered by the Seller to the Buyer at the Delivery Point in accordance with this Agreement will be as set out in Schedule 3.

23. Maintenance 23.1 Scheduled Maintenance rights 23.1.1 To enable the Scheduled Maintenance of the Seller’s Facilities and the Buyer’s Facilities each Party will have the right in each Contract Year to give notice of a reduction to the DCQ (the Maintenance Reduction) in respect of certain Maintenance Days during the next Contract Year in accordance with this Article 23. 23.1.2 Each Party will give notice to the other Party of its requirements for Scheduled Maintenance for the next Contract Year (the Maintenance Notification) by no later than the last day of [insert date] in the Contract Year preceding the Contract Year in which the Scheduled Maintenance is required to be performed (except in the case of the first Contract Year, when the Maintenance Notification will be given by each Party by no later than [insert number] days after the Start Date). 23.1.3

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Each Maintenance Notification will specify: (i)the dates for the Maintenance Days in the next Contract Year during which a Maintenance Reduction will apply; (ii)(subject to Article 23.1.5) the prevailing DCQ and the required Maintenance Reduction for each Maintenance Day (provided that in respect of any Maintenance Day the Maintenance Reduction may only be a reduction of the DCQ to zero or to [insert number] mscf/Gas Day); (iii)the nature of the Scheduled Maintenance which is to be performed on each Maintenance Day. 23.1.4 If a Party fails to give a Maintenance Notification in accordance with Article 23.1.2 or Article 23.1.3 then such Party will be deemed to have given a Maintenance Notification which specifies a requirement for no Scheduled Maintenance in respect of the next Contract Year. 23.1.5 The maximum quantity of Gas by which the Seller may reduce deliveries of Gas to the Buyer and by which the Buyer may reduce its Nominated Quantities for the purpose of performing Scheduled Maintenance in a Contract Year will for each of the Seller and the Buyer not exceed the ACQ applicable to that Contract Year multiplied by [insert number] % (the Annual Maintenance Allowance). 23.1.6 The Parties will use reasonable endeavours to ensure that in respect of each Contract Year their respective Maintenance Days will coincide.

23.2 Consequences of Scheduled Maintenance 23.2.1 In respect of each Maintenance Day the Seller will only be obliged to deliver an aggregate quantity of Gas to the Buyer at the Delivery Point and the Buyer will only be permitted to nominate an aggregate quantity of Gas for delivery by the Seller at the Delivery Point up to the DCQ as reduced by the Maintenance Reduction specified in the Maintenance Notification applicable to such Maintenance Day. 23.2.2 Where the Seller and the Buyer have each scheduled to perform Scheduled Maintenance on the same Maintenance Day and have each given a Maintenance Reduction in respect thereof then the Maintenance Reduction which will apply in respect of such Maintenance Day will be the greater of the Maintenance Reductions given by the Seller or the Buyer in their respective Maintenance Notifications (and if the Buyer and the Seller have given the same Maintenance Reduction then the Seller’s Maintenance Reduction will apply). 23.2.3 The ACQ for a Contract Year in which any Maintenance Reduction is effected will be adjusted in accordance with Article 11.3.1(iii).

23.3 Rescheduling

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At any time during a Contract Year after a Maintenance Notification has been given, or during a Contract Year in which Scheduled Maintenance is to be performed, a Party may reschedule any of its Maintenance Days and/or the Maintenance Reduction applicable to any Maintenance Day subject to the consent of the other Party (such consent not to be unreasonably withheld).

24. Force Majeure 24.1 Definition of a Force Majeure Event A Force Majeure Event is (subject to Article 24.2) any event or circumstance which prevents, impedes or delays the performance by the Affected Party of any covenant or obligation in accordance with this Agreement and which is otherwise validly claimed and maintained by the Affected Party in accordance with this Article 24, including the following events or circumstances: 24.1.1 atmospheric disturbance, drought, earthquake, epidemic, explosion, fire, flood, fog, haze, hurricane, landslide, lightning, soil erosion, storm, subsidence, tempest, tornado, typhoon, washout or other acts of god; 24.1.2 acts or serious threats of war (whether declared or undeclared), riot, civil war, blockade, insurrection, acts of public enemies, invasion, revolution, sabotage or terrorism; 24.1.3 strikes, lock-outs or industrial disturbances; 24.1.4 chemical or radioactive contamination or ionising radiation; 24.1.5 pollution, shipwrecks, perils of the sea or perils to navigation; 24.1.6 damage to, loss of or inoperability of the Seller’s Facilities or damage to, loss of or inoperability of the Buyer’s Facilities; 24.1.7 acts or omissions of a Governmental Authority or the modification or removal of an Authorisation; 24.1.8 the imposition of sanctions.

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24.2 Force Majeure Event exclusions The following events or circumstances will not constitute a Force Majeure Event: 24.2.1 any event or circumstance which makes the performance of this Agreement uneconomic or commercially impracticable or any changes in market conditions or any deterioration in the ability to make a profit or to receive a satisfactory rate of return from the production, sale or consumption of Gas, including in the case of the Buyer any lack of demand for Gas from or other adverse events or circumstances affecting any persons to whom the Buyer sells or supplies Gas (but without prejudice to a Party’s rights in accordance with Article 15); 24.2.2 in the case of the Seller, depletion through production of any of the Designated Sources or any interruption in the production or delivery of Gas which is caused by an interruption in the production or transportation of any crude oil or other hydrocarbon fractions which are produced from the Designated Sources; 24.2.3 in the case of the Seller, any event or circumstance performed by or attributable to a Governmental Authority which is primarily directed at the Seller or this Agreement; 24.2.4 in the case of the Buyer, any event or circumstance performed by or attributable to a Governmental Authority which is primarily directed at the Buyer or this Agreement; 24.2.5 (subject to Article 24.3) in the case of the Seller, any event or circumstance arising in connection with any equipment or facilities other than the Seller’s Facilities; 24.2.6 (subject to Article 24.3) in the case of the Buyer, any event or circumstance arising in connection with any equipment or facilities other than the Buyer’s Facilities; 24.2.7 the breakdown or failure of any equipment (including the Seller’s Facilities or the Buyer’s Facilities) caused by normal wear and tear or caused by the failure of the Affected Party to maintain such equipment or to maintain a suitable stock of spares to the Standard of a Reasonable and Prudent Person; 24.2.8 (subject to Article 24.3) any event or circumstance affecting any Third Party; 24.2.9 the failure of Gas to comply with the Specification at the Delivery Point as a result of the commingling of Gas by the Seller or by the Transporter upstream of the Delivery Point;

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24.2.10 any event or circumstance which comprises or results from any Wilful Misconduct of the Affected Party or any act or omission by the Affected Party which could have been prevented or overcome by the exercise by the Affected Party of the Standard of a Reasonable and Prudent Person; 24.2.11 the imposition of a sanction in respect of an Affected Party by a Governmental Authority due solely to the failure of the Affected Party to comply with any applicable law, regulation or Authorisation; 24.2.12 the inability or the failure of the Affected Party to make payment of any money when due in accordance with this Agreement or the inability or the failure of the Affected Party to raise any financing required in connection with the performance of the Affected Party’s covenants or obligations in accordance with this Agreement; 24.2.13 any matter in respect of which the Affected Party is pursuing a claim for relief in accordance with Article 15.

24.3 Third Parties 24.3.1 For the purposes of this Article 24 any Force Majeure Event which occurs in respect of the Seller will, subject to this Article 24, be deemed to include any event or circumstance which affects any person responsible for any part of the design, construction, installation, commissioning, maintenance, repair or operation of the Seller’s Facilities or any contractor, servant or agent of the Seller or of any the foregoing persons. 24.3.2 For the purposes of this Article 24 any Force Majeure Event which occurs in respect of the Buyer will, subject to this Article 24, be deemed to include any event or circumstance which affects any person responsible for any part of the design, construction, installation, commissioning, maintenance, repair or operation of the Buyer’s Facilities or any contractor, servant or agent of the Buyer or of any of the foregoing persons. 24.3.3 Any event or circumstance which affects any of the persons specified in Article 24.3.1 (in respect of the Seller) or in Article 24.3.2 (in respect of the Buyer) which prevents, impedes or delays the Seller’s or the Buyer’s performance of any covenant or obligation in accordance with this Agreement will constitute a Force Majeure Event in respect of the Seller or the Buyer as appropriate if and to the extent that it is of a kind or character that, if it had happened to that Party, would have come within the definition of a Force Majeure Event in accordance with this Article 24.

24.4 Relief for a Force Majeure Event 24.4.1

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Subject to this Article 24 an Affected Party will not be liable to the other Party for a failure to perform a covenant or obligation in accordance with this Agreement to the extent that the Affected Party’s performance of such covenant or obligation is prevented, impeded or delayed by a Force Majeure Event. 24.4.2 An Affected Party will not be entitled to relief in accordance with this Article 24, or having become entitled will cease to be so entitled, and a Force Majeure Event will cease to be treated as a Force Majeure Event to the extent that the Affected Party fails to comply with the requirements of this Article 24 unless such failure would itself qualify as a Force Majeure Event. 24.4.3 Each Party will to the greatest extent possible continue to perform its covenants or obligations in accordance with this Agreement to the extent not prevented, impeded or delayed by a Force Majeure Event. 24.4.4 If a Force Majeure Event occurs the Affected Party will (acting in accordance with the Standard of a Reasonable and Prudent Person) act to bring the Force Majeure Event to an end and to resume full and proper performance of the covenant or obligation to which the Force Majeure Event relates. 24.4.5 Where a Force Majeure Event affects any of the persons specified in Article 24.3.1 or Article 24.3.2 then the Seller (in respect of any of the persons specified in Article 24.3.1) or the Buyer (in respect of any of the persons specified in Article 24.3.2) will procure that the said persons affected by that Force Majeure Event will (acting in accordance with the Standard of a Reasonable and Prudent Person) act to bring the Force Majeure Event to an end. 24.4.6 When the Affected Party gives notice that it anticipates that it will be able to resume the performance of the covenant or obligation to which the Force Majeure Event relates the Parties will cooperate to accomplish any recommissioning necessary to enable such resumption of performance. 24.4.7 The Affected Party will bear the burden of proving that an event or circumstance constitutes a Force Majeure Event and that otherwise it has complied with the requirements of this Article 24.

24.5 Force Majeure Estimates An Affected Party will give notice (a Force Majeure Estimate) to the other Party at each of the following times: 24.5.1 promptly after the day (the Relevant Day) upon which the Affected Party first knew or ought reasonably to have known of the inability to perform a covenant or obligation in accordance with this Agreement for which relief is sought in accordance with this Article 24; 24.5.2 within [insert number] days from the Relevant Day and on the last day of each subsequent period of [insert number] days thereafter;

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24.5.3 promptly after the Affected Party’s good faith best estimate of the duration of the Force Majeure Event given in accordance with Article 24.6.1(ii) changes; 24.5.4 promptly after the Affected Party anticipates that it will be able to resume performance of the covenant or obligation for which relief is sought in accordance with this Article 24.

24.6 Content of Force Majeure Estimates 24.6.1 Each Force Majeure Estimate will contain the Affected Party’s good faith best estimates of the following information: (i)full particulars of and the reasons for the Force Majeure Event; (ii)the expected extent of the Affected Party’s inability to perform any covenant or obligation in accordance with this Agreement; (iii)the expected duration of the Force Majeure Event from the Relevant Day and the expected date that performance of the covenant or obligation to which the Force Majeure Event relates will be resumed (whether incrementally or in whole); (iv)the actions which the Affected Party (acting in accordance with the Standard of a Reasonable and Prudent Person) proposes to take to bring the Force Majeure Event to an end and to resume full and proper performance of the covenant or obligation to which the Force Majeure Event relates and the Affected Party’s good faith best estimate of the expected schedule thereof; (v)the quantities of Gas that it will (in the case of the Seller) be unable to deliver or that it will (in the case of the Buyer) be unable to take delivery of at the Delivery Point. 24.6.2 Each subsequent Force Majeure Estimate will contain any of the above information not previously given notice of, a full report confirming or updating and amplifying the information contained in any previous Force Majeure Estimates and such further information as the other Party may reasonably require.

24.7 Third Party sales and purchases of Gas 24.7.1 If the Seller is unable because of a Force Majeure Event to deliver Gas to the Buyer at the Delivery Point when required in accordance with this Agreement then the Buyer may enter into an agreement to purchase and to take delivery of Gas from a Third Party for the anticipated duration of the said Force Majeure Event and to the extent of the Seller’s anticipated inability to deliver Gas (such agreement not to exceed the Seller’s good faith best estimate of the extent of the Force Majeure Event given in accordance with Article 24.6.1) and to the extent that the Buyer enters into any such agreement: (i)the Buyer may honour such agreement notwithstanding that the Force Majeure Event ends before the expiry of such agreement;

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(ii)the Seller will give or procure such access to and use of the Seller’s Facilities and/or the Pipeline as may reasonably be necessary to facilitate such purchase and delivery of Gas by the Buyer. 24.7.2 If the Buyer is unable because of a Force Majeure Event to take delivery of Gas from the Seller at the Delivery Point when delivered by the Seller in accordance with this Agreement then the Seller may enter into an agreement to sell and to deliver Gas to a Third Party for the anticipated duration of the said Force Majeure Event and to the extent of the Buyer’s inability to take delivery of Gas (such agreement not to exceed the Buyer’s good faith best estimate of the extent of the duration of the Force Majeure Event given in accordance with Article 24.6.1) and to the extent that the Seller enters into any such agreement: (i)the Seller may honour such agreement notwithstanding that the Force Majeure Event ends before the expiry of such agreement; (ii)the Buyer will give or procure such access to and use of the Buyer’s Facilities as may reasonably be necessary to facilitate such sale and delivery of Gas by the Seller; (iii)the quantity of Gas so sold and delivered by the Seller to the Third Party will count toward the Contract Quantity.

24.8 Expert determination Any dispute between the Parties concerning the application of this Article 24 will be referred to an Expert for determination in accordance with Article 30.

25. Liabilities and Limitations 25.1 Exclusive remedies 25.1.1 The remedies set out in this Agreement in respect of a breach by a Party of this Agreement will be the exclusive remedies of the Parties in respect of such a breach and will be exhaustive of any other remedies howsoever arising (whether at law, in equity or under any statutory duty, strict or tortious liability or otherwise). 25.1.2 The provisions of Article 25.1.1 will (subject to Article 36.2) be without prejudice to the rights of a Party to seek injunctive or declaratory relief in respect of that Party’s rights and interests and/or the covenants or obligations of the other Party in accordance with this Agreement.

25.2 Consequential Loss liability A Party will not be liable to the other Party for any Consequential Loss suffered by that other Party resulting from a breach of this Agreement by the first Party.

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25.3 Liability for Wilful Misconduct 25.3.1 Nothing in this Agreement will limit, exclude or prevent any liability of a Party in respect of any loss or liability caused by that Party’s Wilful Misconduct. 25.3.2 The liability of a Party to indemnify the other Party in accordance with this Agreement will not apply where the liability to so indemnify has arisen in consequence of the Wilful Misconduct of the Party to be indemnified.

25.4 Liability for property and personnel loss or damage 25.4.1 The Buyer will be responsible for and will indemnify the Seller against any loss or liability which the Seller may have in respect of: (i)any loss of or damage to the Buyer’s Facilities arising out of or in connection with this Agreement; (ii)any claim, demand, action or proceedings brought or instituted against the Seller or any of the Seller’s Associated Persons by the Buyer or any of the Buyer’s Associated Persons for personal injuries, illness, death or damage to property arising out of or in connection with this Agreement and even where caused by the negligence or breach of duty of the Seller. 25.4.2 The Seller will be responsible for and will indemnify the Buyer against any loss or liability which the Buyer may have in respect of: (i)any loss of or damage to the Seller’s Facilities arising out of or in connection with this Agreement; (ii)any claim, demand, action, or proceedings brought or instituted against the Buyer or any of the Buyer’s Associated Persons by the Seller or any of the Seller’s Associated Persons for personal injuries, illness, death or damage to property arising out of or in connection with this Agreement, and even where caused by the negligence or breach of duty of the Buyer.

25.5 Liability for Third Party claims 25.5.1 The Buyer will be responsible for and will indemnify the Seller against any loss or liability which the Seller may have in respect of any claim, demand, action or proceedings brought or instituted against the Seller or any of the Seller’s Associated Persons by any Third Party arising out of or in respect of the exercise by the Buyer of its rights or interests and/or the performance by the Buyer of its covenants or obligations in accordance with this Agreement. 25.5.2 The Seller will be responsible for and will indemnify the Buyer against any loss or liability which the Buyer may have in respect of any claim, demand, action or proceedings brought or instituted against the Buyer or any of the Buyer’s © 2023 Thomson Reuters.

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Associated Persons by any Third Party arising out of or in respect of the exercise by the Seller of its rights or interests and/or the performance by the Seller of its covenants or obligations in accordance with this Agreement.

25.6 Conduct of claims 25.6.1 A Party which has a right to be indemnified by the other Party in accordance with this Agreement (the Indemnified Party) will promptly notify the Party obliged to make such indemnification (the Indemnifying Party) of the assertion or commencement of any claim, demand, action or proceedings in respect of which the Indemnified Party may be indemnified by the Indemnifying Party (an Indemnifiable Action). 25.6.2 The Indemnified Party will at the request of the Indemnifying Party: (i)(at the expense of the Indemnified Party) assume responsibility for the defence or settlement of any Indemnifiable Action with legal counsel reasonably satisfactory to the Indemnifying Party (provided that the Indemnifying Party will at its own expense have the right to participate fully in the defence or settlement of such Indemnifiable Action); (ii)allow the Indemnifying Party (at its own expense) to assume responsibility for the defence or settlement of any Indemnifiable Action, with such defence or settlement to be at the sole risk and expense of the Indemnifying Party. 25.6.3 Neither Party will settle any Indemnifiable Action without the prior written consent of the other Party (such consent not to be unreasonably withheld).

25.7 Mitigation of losses An Indemnified Party will use reasonable endeavours to mitigate the losses for which the Indemnified Party has a right to be indemnified by the Indemnifying Party in accordance with this Agreement (including the Indemnified Party making recoveries in accordance with any appropriate policies of insurance which the Indemnified Party may have in force from time to time).

25.8 Waiver of sovereign immunity A Party which is entitled to plead any form of sovereign immunity: 25.8.1 consents generally in accordance with the State Immunity Act 1978 to the issue of any proceedings or to relief being given against it by way of injunction or order for specific performance or for the recovery of any property whatsoever and to its property being subject to any process for the enforcement of any order or judgment or any process effected in the course of or as a result of any action in rem; 25.8.2 irrevocably waives and will not claim any immunity from suits and proceedings and from all forms of execution or attachment (including attachment prior to judgment and attachment in aid of execution) to which it or its property is

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now or may hereafter become entitled in accordance with the laws of any jurisdiction and declares that such waiver will be effective to the fullest extent permitted by such laws.

26. Transfers 26.1 Prohibited transfers A Party will not transfer, cede, assign or otherwise divest any of its rights, interests, covenants or obligations (in whole or in part) under or in respect of this Agreement except as permitted in accordance with this Article 26.

26.2 Limitations on transfers Without prejudice to Article 26.3 or Article 26.4 a Party (the Transferor) may transfer all of its rights, interests, covenants or obligations under or in respect of this Agreement to a Third Party (the Transferee) subject to the prior written consent of the non-transferring Party (such consent not to be unreasonably withheld) and provided also that no such transfer will be effective unless and until the Transferor: 26.2.1 has procured the Transferee to covenant directly with the non-transferring Party to observe and perform this Agreement; 26.2.2 has given to the non-transferring Party a certified copy of the document effecting such transfer (excluding any commercially sensitive terms relating to such transfer); 26.2.3 (in the case of a transfer by the Buyer and where the Buyer’s Guarantee has been provided in accordance with Article 17) has procured an undertaking from the Buyer’s Guarantor that the Buyer’s Guarantee will be extended in favour of the Seller to cover the performance of the Transferee or has procured a replacement guarantee in a form and from a person reasonably satisfactory to the Seller in respect of the performance of the Transferee; 26.2.4 has procured all necessary regulatory consents and approvals which may be required in connection with such transfer; 26.2.5 (in the case of a transfer by the Seller) has transferred to the Transferee all of the Seller’s interests in the Seller’s Documents; 26.2.6 (in the case of a transfer by the Buyer) has transferred to the Transferee all of the Buyer’s interests in the Buyer’s Concession, (where Articles 26.2.1 to 26.2.6 inclusive are the Transfer Conditions).

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26.3 Transfers to Affiliates A Party (the Transferor) may transfer all of its rights, interests, covenants or obligations under or in respect of this Agreement to an Affiliate of the Transferor (the Affiliate Transferee) without the consent of the non-transferring Party provided that: 26.3.1 the Transfer Conditions will apply in respect of the Affiliate Transferee as if it were the Transferee as named therein; 26.3.2 the Transferor will remain fully liable (jointly and severally with the Affiliate Transferee) to the non-transferring Party in respect of the rights, interests, covenants or obligations so transferred to the Affiliate Transferee; 26.3.3 if after the conclusion of a transfer to an Affiliate Transferee in accordance with this Article 26.3 that Affiliate Transferee continues to hold the rights, interests, covenants or obligations so transferred and ceases to satisfy the definition of an Affiliate in accordance with Article 1.1 then the Transferor will procure that the Affiliate Transferee will promptly transfer such rights, interests, covenants or obligations back to the Transferor.

26.4 Financing transfers 26.4.1 A Party (the Transferor) may transfer by way of security or create a security interest over this Agreement to or in favour of banks, financial institutions, credit agencies or other lenders (the Lenders) as security for any financing or refinancing of the Transferor’s rights, interests, covenants or obligations under or in respect of this Agreement provided that: (i)Article 26.2.1 will apply in respect of the Lenders as if they were the Transferee as named therein; (ii)the Lenders will covenant directly with the non-transferring Party that upon the exercise of any security rights or interests in accordance with their lending arrangements with the Transferor the Lenders or any nominee of the Lenders will accept and comply with all of the covenants or obligations of the Transferor under or in respect of this Agreement and will not transfer any rights, interests, covenants or obligations under or in respect of this Agreement to any person other than in accordance with this Article 26. 26.4.2 The non-transferring Party will upon request by the Transferor negotiate and enter into a written agreement with the Lenders on reasonable terms which provides for: (i)the transfer of the Transferor’s rights, interests, covenants or obligations in interests under or in respect of this Agreement to a nominee of the Lenders following any default by the Transferor in accordance with the lending arrangements with the Lenders; (ii)a requirement that where the non-transferring Party intends to terminate this Agreement in accordance with this Agreement then the non-transferring Party will first give reasonable notice to the Lenders prior to the exercise of such right of termination.

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26.5 Third Parties 26.5.1 A Party will have the right to perform any of its covenants or obligations under or in respect of this Agreement by procuring that such covenants or obligations are performed on that Party’s behalf by another person (including by any of the Seller’s Representative or the Buyer’s Representative (as appropriate) or by any Affiliate, employee, agent or contractor of such Party). 26.5.2 Notwithstanding the rights and interests of a Party in accordance with Article 26.5.1 such Party will remain fully liable (jointly and severally with such other person) to the other Party in respect of the performance of such covenants or obligations. 26.5.3 The Parties do not intend that any term of this Agreement should be enforceable in accordance with the Contracts (Rights of Third Parties) Act 1999 by any person who is not a Party. Any of the Buyer’s Associated Persons, the Seller’s Associated Persons or the Transporter will not be regarded as a third party for the purposes of interpretation of the Contracts (Rights of Third Parties) Act 1999 as it applies to this Agreement.

27. Termination 27.1 Events of termination This Agreement will terminate upon the first to occur of the following events: 27.1.1 the [insert number] anniversary of the Start Date; 27.1.2 delivery by the Seller to the Buyer at the Delivery Point in accordance with this Agreement of a quantity of Gas equal to the Contract Quantity; 27.1.3 the issue of a notice of termination in accordance with any of Articles 2.3.8, 16.6.2, 17.4, 27.2, 27.3, 27.4, 27.5 or 27.6 becoming effective; 27.1.4 termination of this Agreement by the operation of applicable law or by agreement in writing between the Parties; 27.1.5

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termination of the Gas Transportation Agreement (other than in consequence of any default of the Seller as the shipper therein).

27.2 Economic termination by the Seller 27.2.1 The Seller may give notice of termination (an Economic Termination Notice) to the Buyer in respect of any Contract Year falling after the end of the Plateau Period (the Specified Year) where the Seller, acting in accordance with the Standard of a Reasonable and Prudent Person, believes that in respect of the Specified Year it will no longer be Economic for the Seller to continue to sell and deliver Gas to the Buyer at the Delivery Point in accordance with this Agreement. 27.2.2 An Economic Termination Notice cannot be given by the Seller less than [insert number] months prior to the start of the Specified Year. 27.2.3 The Seller will give to the Buyer all data and information reasonably necessary to support an Economic Termination Notice at the same time as the Seller gives an Economic Termination Notice to the Buyer. 27.2.4 Within [insert number] days from the date of receipt by the Buyer of an Economic Termination Notice the Buyer may give the Seller a notice of objection to the same and if within [insert number] days of the giving of such a notice of objection the Parties are unable to agree in writing on whether in respect of the Specified Year it will no longer be Economic for the Seller to continue to sell and deliver Gas to the Buyer at the Delivery Point in accordance with this Agreement then either Party may refer the matter to an Expert for determination in accordance with Article 30. 27.2.5 If following reference to an Expert in accordance with Article 27.2.4 the Expert determines that in respect of the Specified Year it will still be Economic for the Seller to continue to sell and deliver Gas to the Buyer at the Delivery Point in accordance with this Agreement then this Agreement will continue in force but without prejudice to the Seller’s right to give further Economic Termination Notices in respect of later Contract Years. 27.2.6 If following reference to an Expert in accordance with Article 27.2.4 the Expert determines that in respect of the Specified Year it is or it will be no longer Economic for the Seller to sell and deliver Gas to the Buyer at the Delivery Point in accordance with this Agreement then this Agreement will terminate on the last day of [insert day] in the Specified Year. 27.2.7 If the Buyer does not give a notice of objection within the said period of [insert number] days in accordance with Article 27.2.4 then the Buyer will be deemed to have accepted the Seller’s Economic Termination Notice for all purposes in accordance with this Agreement and this Agreement will terminate on the last day of [insert number] in the Specified Year.

27.3 Termination for an Act of Insolvency

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27.3.1 Either Party may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the other Party upon or after the occurrence of an Act of Insolvency in respect of that other Party. 27.3.2 This Agreement will terminate upon the expiry of the period of notice given in accordance with Article 27.3.1 unless the Party to which the notice of termination has been given has demonstrated to the reasonable satisfaction of the Party giving the notice of termination that the Act of Insolvency complained of does not apply and the Party giving the notice of termination has withdrawn that notice.

27.4 Termination for accumulated Shortfall 27.4.1 If during the Basic Term the aggregate quantity of Shortfall Gas for a continuous period of [insert number] days is equal to or greater than [insert number] % of the aggregate of the DCQs applicable to such period of [insert number] days then the Buyer may terminate this Agreement by notice given to the Seller in accordance with Article 27.4.2. 27.4.2 Where the conditions of Article 27.4.1 apply the Buyer may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the Seller, which notice will be given within a period of [insert number] days after the expiration of the period of [insert number] days specified in Article 27.4.1. 27.4.3 This Agreement will terminate upon the expiry of the period of notice given in accordance with Article 27.4.2. 27.4.4 If the Buyer fails to give a notice of termination to the Seller within the [insert number] day period specified in Article 27.4.2 then the Buyer’s right to terminate this Agreement in accordance with this Article 27.4 will cease to apply and will have no further effect in respect of the period of [insert number] days specified in Article 27.4.1 to which such right of termination would otherwise apply but this will be without prejudice to the Buyer’s right to exercise its right of termination in accordance with this Article 27.4 in respect of any subsequent circumstances to which this Article 27.4 would otherwise apply.

27.5 Termination for prolonged non-taking of delivery of Gas 27.5.1 If during the Basic Term the aggregate quantity of Gas which the Buyer has not taken delivery of from the Seller at the Delivery Point for any reason for a continuous period of [insert number] days is equal to or greater than [insert number] % of the aggregate of the DCQs applicable to such period of [insert number] days then the Seller may terminate this Agreement by notice given to the Buyer in accordance with Article 27.5.2. 27.5.2

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Where the conditions of Article 27.5.1 apply the Seller may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the Buyer, which notice will be given within a period of [insert number] days after the expiration of the period of [insert number] days specified in Article 27.5.1. 27.5.3 This Agreement will terminate upon expiry of the period of notice given in accordance with Article 27.5.2. 27.5.4 If the Seller fails to give a notice of termination to the Buyer within the [insert number] day period specified in Article 27.5.2 then the Seller’s right to terminate this Agreement in accordance with this Article 27.5 will cease to apply and will have no further effect in respect of the period of [insert number] days specified in Article 27.5.1 to which such right of termination would otherwise apply but this will be without prejudice to the Seller’s right to exercise its right of termination in accordance with this Article 27.5 in respect of any subsequent circumstances to which this Article 27.5 would otherwise apply.

27.6 Termination for prolonged Force Majeure 27.6.1 If during the Basic Term a Party is relieved in accordance with Article 24 in respect of a Force Majeure Event then either Party may terminate this Agreement if: (i)such Force Majeure Event has subsisted for a continuous period of not less than [insert number] days and is continuing upon the date that a notice is given in accordance with Article 27.6.2 in respect of such Force Majeure Event; and (ii)such Force Majeure Event has resulted in the non-delivery by the Seller or the non-taking of delivery by the Buyer of a quantity of Gas which over such period of [insert number] days is equal to or greater than [insert number] % of the aggregate of the DCQs applicable to such period of [insert number] days. 27.6.2 Where the conditions of Article 27.6.1 apply a Party may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the other Party, which notice will be given within the period of [insert number] days after the expiration of the period of [insert number] days specified in Article 27.6.1. 27.6.3 This Agreement will terminate upon the expiry of the period of notice given in accordance with Article 27.6.2. 27.6.4 If a Party fails to give a notice of termination to the other Party within the [insert number] day period specified in Article 27.6.2 then the right of either Party to terminate this Agreement in accordance with this Article 27.6 will cease to apply and will have no further effect in respect of the Force Majeure Event to which such right of termination would otherwise apply but this will be without prejudice to a Party’s right to exercise its right of termination in accordance with this Article 27.6 in respect of any subsequent Force Majeure Events to which this Article 27.6 would otherwise apply.

27.7 Monthly Shortfall Aggregate on termination

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27.7.1 If upon the Termination Date there is or will be an outstanding Monthly Shortfall Aggregate then (subject to Article 27.9) the Seller will (at the Seller’s written election to be exercised in accordance with Article 27.7.4) pay the Shortfall Gas Termination Payment to the Buyer or will perform the covenants and obligations set out in Article 27.7.3. 27.7.2 Where the Seller elects to pay the Shortfall Gas Termination Payment to the Buyer then payment thereof will be made in accordance with Article 15.4.1. 27.7.3 Where the Seller elects to perform the covenants and obligations set out in this Article 27.7.3 then: (i)the Parties will promptly meet and in good faith discuss and attempt to agree in writing a period of extension to the Basic Term which will not exceed [insert number] days (the Shortfall Gas Extension Period); (ii)during the Shortfall Gas Extension Period the Seller will deliver to the Buyer (at the Delivery Point or at any alternative delivery point) an aggregate quantity of Gas equal to the outstanding Monthly Shortfall Aggregate, which will be paid for by the Buyer at the Shortfall Gas Price; (iii)if at any time during the Shortfall Extension Period the Seller is unable to deliver any quantities of Gas to the Buyer in settlement of the outstanding Monthly Shortfall Aggregate then the Parties will promptly meet and in good faith discuss and attempt to agree in writing on alternative delivery points for the delivery of alternative petroleum products and/or hydrocarbon fractions reasonably equivalent to the outstanding Monthly Shortfall Aggregate; (iv)any alternative petroleum products and/or hydrocarbon fractions delivered to alternative delivery points during the Shortfall Gas Extension Period will be paid for by the Buyer in accordance with Article 16 at the appropriate equivalent to the Shortfall Gas Price which may be agreed in writing between the Parties considering the costs to deliver such alternative petroleum products and/or hydrocarbon fractions; (v)at the end of the Shortfall Extension Period the Buyer’s rights to receive Gas and/or alternative petroleum products and/or hydrocarbon fractions on account of any outstanding Monthly Shortfall Aggregate will cease to apply and will have no further effect and the Seller will have no liability to the Buyer on account of the Seller’s failure to have delivered such quantities or the Buyer’s failure to have taken delivery of such quantities. 27.7.4 The Seller will as soon as reasonably practicable ahead of or within a period of [insert number] days after the Termination Date give its written election as to whether the Seller will pay the Shortfall Gas Termination Payment to the Buyer or will perform the covenants or obligations set out in Article 27.7.3. If such election is not so made then Article 27.7.2 will be deemed to apply. 27.7.5 This Article 27.7 will not apply where this Agreement has been terminated by the Seller in accordance with any of Articles 16.6.2, 17.4 or 27.3. 27.7.6 The Shortfall Gas Termination Payment will be the product of the Monthly Shortfall Aggregate outstanding upon the Termination Date multiplied by [insert number] % of the Contract Price applicable upon the Termination Date.

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27.8 Outstanding Annual Deficiencies on termination 27.8.1 If upon the Termination Date there is or will be an Outstanding Annual Deficiency then (subject to Article 27.9.) the Seller will (at the Buyer’s written election to be exercised in accordance with Article 27.8.4) pay the Make Up Gas Termination Payment to the Buyer or will perform the covenants or obligations set out in Article 27.8.3. 27.8.2 Where the Buyer elects that the Seller will pay the Make Up Gas Termination Payment to the Buyer then such payment will be made in accordance with Article 16.4.1. 27.8.3 Where the Buyer elects that the Seller will perform the covenants or obligations set out in this Article 27.8.3 then: (i)the Parties will promptly meet and in good faith discuss and attempt to agree in writing a period of extension to the Basic Term which will not exceed [insert number] days (the Make Up Gas Extension Period); (ii)during the Make Up Gas Extension Period the Seller will deliver to the Buyer (at the Delivery Point or at any alternative delivery point) an aggregate quantity of Gas equal to the Outstanding Annual Deficiency, in respect of which the Buyer will not be obliged to make payment to the Seller; (iii)if at any time during the Make Up Gas Extension Period the Seller is unable to deliver any quantities of Gas to the Buyer in settlement of the Outstanding Annual Deficiency then the Parties will promptly meet and in good faith discuss and attempt to agree in writing on alternative delivery points for the delivery of Gas and/or alternative petroleum products and/or hydrocarbon fractions reasonably equivalent to the Outstanding Annual Deficiency; (iv)the Buyer will not be obliged to make payment to the Seller in respect of any alternative petroleum products and/or hydrocarbon fractions delivered to alternative delivery points during the Make Up Gas Extension Period; (v)at the end of the Make Up Gas Extension Period the Buyer’s rights to receive Gas and/or alternative petroleum products and/or hydrocarbon fractions on account of any Outstanding Annual Deficiency will cease to apply and will have no further effect and the Seller will have no liability to the Buyer on account of the Seller’s failure to deliver such quantities or the Buyer’s failure to have taken delivery of such quantities. 27.8.4 The Buyer will as soon as reasonably practicable ahead of or within a period of [insert number] days after the Termination Date give the Seller its written election as to whether the Seller will pay the Make Up Gas Termination Payment to the Buyer or will perform the covenants or obligations set out in Article 29.8.3. If such election is not so made then Article 27.8.3 will be deemed to apply. 27.8.5 This Article 27.8 will not apply where this Agreement has been terminated by the Seller in accordance with any of Articles 16.6.2, 17.4 or 27.3. 27.8.6 The Make Up Gas Termination Payment will be the aggregate of the Annual Take or Pay Payments made by the Buyer which constitute the Outstanding Annual Deficiency which is outstanding upon the Termination Date.

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27.9 Monthly Shortfall Aggregate and Outstanding Annual Deficiencies 27.9.1 If upon the Termination Date there is or will be an outstanding Monthly Shortfall Aggregate and an Outstanding Annual Deficiency then the Seller will pay the Shortfall Gas Termination Payment in respect of the outstanding Monthly Shortfall Aggregate (subject to compliance by the Buyer with Article 16.4.1) and the Seller will perform the covenants or obligations set out in Article 27.8.3 in respect of the Outstanding Annual Deficiency. 27.9.2 During any Shortfall Gas Extension Period or the Make Up Gas Extension Period the rights, interests, covenants or obligations contained in any of Articles 5.5, 11 or 12 will not apply in respect of the Parties.

27.10 Post termination consequences 27.10.1 Except where expressly provided to the contrary in this Agreement, any termination of this Agreement will relieve the Parties of their covenants, obligations or liabilities in accordance with this Agreement with effect from the Termination Date but will be without prejudice to any covenants, obligations or liabilities which arose or were incurred on or prior to the Termination Date. 27.10.2 The covenant or obligation of a Party to indemnify the other Party in accordance with this Agreement will survive any termination of this Agreement but only with respect to claims causing the covenant or obligation to indemnify to apply which arose or were incurred on or prior to the Termination Date. 27.10.3 Any limitations or exclusions of liability contained in this Agreement will survive any termination of this Agreement.

28. Confidentiality 28.1 Confidential Information All Confidential Information will during the Basic Term and until [insert number] years after the Termination Date be kept confidential and (except to the extent that disclosure is permitted in accordance with Article 28.2) will not be disclosed in whole or in part by a Party to any Third Party without the prior written consent of the other Party (such consent not to be unreasonably withheld).

28.2 Permitted disclosures 28.2.1

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Notwithstanding Article 28.1 a Party (the Disclosing Party) will not be required to obtain the prior written consent of the other Party in respect of the disclosure of Confidential Information: (i)to the Disclosing Party’s Affiliates or to the Disclosing Party’s or its Affiliates’ directors, officers or employees but only to the extent reasonably required for the performance of this Agreement by the Disclosing Party; (ii)to persons professionally engaged by or on behalf of the Disclosing Party (including any auditors or insurers) but only to the extent reasonably required for the performance of this Agreement by the Disclosing Party; (iii)to any Lenders and their respective professional advisers but only to the extent reasonably required in connection with any financing or refinancing of the Disclosing Party’s rights, interests, covenants or obligations in accordance with this Agreement; (iv)to any bona fide proposed Transferee but only to the extent reasonably required in respect of a proposed transfer by the Disclosing Party; (v)to the Transporter but only to the extent reasonably required for the performance of this Agreement by the Disclosing Party; (vi)to the Seller’s Representative or to the Buyer’s Representative; (vii)to the extent required by any applicable laws, rules and regulations of any recognised stock exchange or to the extent required by any lawful subpoena or other process in connection with any judicial, arbitral or administrative proceedings; (viii)to any Governmental Authority having jurisdiction over the Disclosing Party but only to the extent that the Disclosing Party is required to make such disclosure by applicable law or by directions or regulations of such Governmental Authority not having the force of law but in accordance with which the Disclosing Party is accustomed to comply. 28.2.2 In the event of the disclosure of Confidential Information to any Third Party in accordance with any of Articles 28.2.1(i), (ii), (iii), (iv), (v) or (vi) the Disclosing Party will ensure that such Third Parties will, prior to such disclosure, undertake to the Disclosing Party to keep the Confidential Information confidential on the same terms as this Article 28 provides for.

28.3 Announcements A Party will not issue or make any public statement or announcement regarding this Agreement without the prior written consent of the other Party (such consent not to be unreasonably withheld) except where such public statement or announcement is required to the extent required by any applicable laws, rules and regulations of any recognised stock exchange or to the extent required by any lawful subpoena or other process in connection with any judicial, arbitral or administrative proceedings (whereupon the Party making such public statement or announcement will promptly furnish the other Party with a copy).

29. Arbitration 29.1 Resolution of Disputes 29.1.1

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Any dispute arising between the Parties relating to this Agreement which is not a dispute which will be determined by an Expert in accordance with Article 30 (a Dispute) will (unless the Parties otherwise agree in writing) be finally resolved by arbitration conducted in accordance with the UNCITRAL Rules in force at the time such arbitration is commenced. 29.1.2 Pending the resolution of a Dispute in accordance with this Article 29 the Parties will to the greatest extent possible continue to perform their covenants and obligations in accordance with this Agreement. 29.1.3 Any reference of a Dispute to arbitration by a Party in accordance with this Article 29 may only be withdrawn by the written agreement of the Parties.

29.2 Commencement of arbitration A Party may at any time give notice to the other Party of the existence of a Dispute (an Arbitration Notice) and such Arbitration Notice will set out in reasonable detail the grounds for the Dispute in the opinion of the Party giving the Arbitration Notice.

29.3 Appointment of arbitrators The procedure for the appointment of arbitrators will be as follows: 29.3.1 each Party will appoint an arbitrator within [insert number] days after the date of receipt of an Arbitration Notice by the Party to which the Arbitration Notice was given and those arbitrators will then jointly appoint a third arbitrator within [insert number] days after the date of appointment of the second arbitrator to act as chairman of the arbitral panel; 29.3.2 arbitrators not appointed within the time limits specified in Article 29.3.1 will at the request of a Party be appointed by the President of the SPE; 29.3.3 the site of the arbitration will be London, England or such other place as the Parties may agree in writing; 29.3.4 the language of the arbitration will be English and the procedural law relating to the arbitration will be English law; 29.3.5 each Party will bear the costs and expenses of all professional advisers, witnesses and employees retained by it in connection with the arbitration.

29.4 Conflicting interests

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Any person appointed as an arbitrator will (subject to Article 29.5) be entitled to act as such notwithstanding that at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) the arbitrator has or may have some interest or duty which conflicts or may conflict with such appointment provided that: 29.4.1 the arbitrator will disclose such interest or duty of which he is aware before accepting such appointment (or promptly upon any such interest or duty arising subsequent to such appointment) and the appointing Party or the appointing arbitrators as appropriate will within [insert number] days after such disclosure have given him written confirmation of his appointment; 29.4.2 if any appointing Party or the appointing arbitrators as appropriate fails to give such confirmation because it or they consider that there is a material risk of such interest or duty prejudicing the arbitrator’s decision then any Party may request the President of the SPE to decide if such arbitrator will be appointed or not, having considered any submissions any Party may wish to make. If the President of the SPE decides not to confirm the appointment it will be deemed never to have been made and the appointing Party or the appointing arbitrators as appropriate will select another arbitrator in accordance with this Article 29.

29.5 Disqualification to act as an arbitrator No person will be appointed as an arbitrator who at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) is a director, officeholder or an employee of or directly or indirectly retained as consultant to the Buyer or the Seller or the Transporter (or any Affiliate of any of the foregoing persons) or who is the holder directly or indirectly of shares in any of the foregoing persons (unless such person is a company quoted on a recognised stock exchange and the shareholding held is less than [insert number] % of the issued shares of any class).

29.6 The arbitration award 29.6.1 Any arbitration award rendered in consequence of an arbitration commenced in accordance with this Article 29: (i)will be in writing and will set out in reasonable detail the facts of the Dispute and the reasons for the decision of the arbitral panel; (ii)will apportion the costs of the arbitration between the Parties according to the determination of the arbitral panel; (iii)(to the greatest extent possible in accordance with applicable law) will be final and binding upon the Parties; (iv)will promptly be implemented by the Parties. 29.6.2 (Subject to Article 36.2) judgment on any arbitration award rendered in accordance with this Article 29 may be entered in court for its enforcement.

29.7 Consolidation of arbitrations

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Where all or a significant part of the matter of a Dispute has also been referred to arbitration in accordance with the Gas Transportation Agreement then (insofar as the Parties are able to procure) the Dispute and the dispute in accordance with the Gas Transportation Agreement will be resolved within the context of a single arbitration.

30. Expert Determination 30.1 Determination by an Expert 30.1.1 Whenever any matter is to be referred to an Expert for determination in accordance with this Agreement or the Parties otherwise agree in writing that any dispute between them will be determined by an Expert then this Article 30 will apply. 30.1.2 Pending the determination of an Expert in accordance with this Article 30 the Parties will to the greatest extent possible continue to perform their covenants and obligations in accordance with this Agreement. 30.1.3 Any reference by a Party to an Expert for determination in accordance with this Article 30 may only be withdrawn by the written agreement of the Parties.

30.2 Appointment of an Expert The procedure for the appointment of an Expert will be as follows: 30.2.1 the Party wishing the appointment of an Expert to be made will give notice to that effect to the other Party and with such notice will give details of the matter which it is proposed will be determined by an Expert; 30.2.2 the Parties will promptly meet and in good faith discuss and attempt to agree in writing upon a single Expert to whom the matter will be referred for determination; 30.2.3 if within [insert number] days from the date of receipt of the notice by the Party to which such notice was given in accordance with Article 30.2.1 the Parties have failed to meet or have failed to agree upon an Expert in accordance with Article 30.2.2 then either Party may request the President of the SPE to select an Expert within [insert number] days and to give notice to the Parties of such selection; 30.2.4 upon an Expert being agreed or selected in accordance with this Article 30 either Party will give notice to such Expert of his selection and will request him to confirm in writing within [insert number] days whether or not he is willing and able to accept appointment as an Expert in respect of the matter;

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30.2.5 if such Expert is unwilling or unable to accept such appointment or has confirmed his acceptance of such appointment within the said period of [insert number] days then (unless the Parties are able to agree in writing upon the appointment of another Expert) either Party may request the President of the SPE to select an Expert within [insert number] days and to give notice to the Parties of such selection and the process in this Article 30.2 will be repeated until an Expert is found who accepts appointment; 30.2.6 the retainer agreement for the Expert will be entered into jointly by the Parties and the Parties will cooperate in good faith in the negotiation and agreement of the terms and in the administration of the said retainer agreement; provided that if there will be any dispute between the Parties on the amount of remuneration to be offered to the Expert or upon any of the other terms of his appointment (other than are provided for by this Agreement) then such amount or such other terms will be determined by the President of the SPE upon request by either Party whose decision will be final and binding on the Parties.

30.3 Identity of an Expert An Expert will be any person generally recognised as an expert in a field of expertise relevant to the matter to be determined.

30.4 Appointment of a replacement Expert If within [insert number] days after the acceptance by the Expert of his appointment in accordance with this Article 30 the Expert will not have rendered a final determination then at the request of a Party a new Expert will be appointed in accordance with this Article 30 and upon the acceptance of appointment by such new Expert the appointment of the previous Expert will cease, provided that if the previous Expert will have rendered a final determination prior to the date upon which the new Expert accepts his appointment in writing then such determination will be binding upon the Parties and the instructions to the new Expert will be withdrawn.

30.5 Acting as an Expert Any Expert appointed in accordance with this Article 30 will be deemed not to be an arbitrator but will render his determination as an expert and the provisions of the Arbitration Act 1996 will not apply to such Expert or his determination or the procedure by which he reaches his determination.

30.6 Conflicting interests Any person appointed as an Expert will (subject to Article 30.7) be entitled to act as such notwithstanding that at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) the Expert has or may have some interest or duty which conflicts or may conflict with such appointment provided that: 30.6.1 the Expert will disclose such interest or duty of which he is aware before accepting such appointment (or promptly upon any such interest or duty arising subsequent to such appointment) and the Parties will within [insert number] days after such disclosure have given him written confirmation of his appointment; 30.6.2

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if any Party fails to give such confirmation because it considers that there is a material risk of such interest or duty prejudicing the Expert’s decision then the other Party may request the President of the SPE to decide if such Expert will be appointed or not, having considered any submissions any Party may wish to make. If the President of the SPE decides not to confirm the appointment it will be deemed never to have been made and the Parties will select another Expert in accordance with this Article 30.

30.7 Disqualification to act as an Expert No person will be appointed as an Expert who at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) is a director, officeholder or an employee of or directly or indirectly retained as consultant to the Buyer or the Seller or the Transporter (or any Affiliate of any of the foregoing persons) or who is the holder directly or indirectly of shares in any of the foregoing persons (unless such person is a company quoted on a recognised stock exchange and the shareholding held is less than [insert number] % of the issued shares of any class).

30.8 Procedure for an Expert determination In any determination by an Expert in accordance with this Article 30: 30.8.1 each Party may make such written submissions and may supply such written information to the Expert as that Party thinks fit and the Expert will be entitled to request and receive such oral or written explanations, submissions or information from the Parties as he may consider desirable to enable him to render a determination (in which event each of the Parties will promptly comply with any such request); 30.8.2 subject to the Expert’s right to call for oral explanations, submissions or information by a Party in accordance with Article 30.8.1 all communications or submissions from a Party to the Expert relating to the matter will be made in writing and a copy thereof given simultaneously to the other Party; 30.8.3 if a Party is requested by the Expert to give any oral explanations, submissions or information to the Expert such Party will give to the other Party as much prior notice as is reasonably possible of the time and place at which such oral explanations, submissions or information are to be made or given and will afford to the other Party the opportunity to be present; 30.8.4 the language for all submissions, explanations, information, proposals and determinations in accordance with this Article 30 will be English; 30.8.5 the Expert will be entitled to obtain such independent professional and/or technical advice as he may reasonably require; 30.8.6 irrespective of whether the Expert requests oral explanations, submissions or information the Expert will require the Parties to give final written proposals on the matter in such form and by such date as the Expert may require (but in any event with not less than [insert number] days’ prior notice to the Parties);

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30.8.7 the Expert will give full written reasons for his determination and will furnish the Parties a draft of his proposed determination in respect of which the Parties will be entitled to make representations to the Expert within [insert number] days after receipt thereof. The Expert will render his final determination in writing to the Parties promptly thereafter; 30.8.8 the final determination of the Expert will (to the greatest extent possible in accordance with applicable law) be final and binding upon the Parties and neither Party will have any right to appeal the decision of the Expert; 30.8.9 each Party will bear the costs and expenses of all professional advisers, witnesses and employees retained by it in connection with the Expert determination but the cost and expenses of the Expert and any independent advisers to the Expert applicable to any matter arising in accordance with this Agreement will (unless the Expert otherwise determines) be apportioned equally between the Parties.

30.9 Consolidation of Expert determinations Where all or a significant part of the matter of a reference to an Expert in accordance with this Article 30 has also been referred to an expert for determination in accordance with the Gas Transportation Agreement then (insofar as the Parties are able to procure) the matter hereunder and the matter in accordance with the Gas Transportation Agreement will be determined within the context of a single Expert determination.

31. Insurance 31.1 Insurances to be effected by the Buyer The Buyer will throughout the Basic Term take out and maintain in force at its own expense the following insurances: 31.1.1 insurance covering loss of or damage to the Buyer’s Facilities including insurance in respect of delay in start-up and business interruption; 31.1.2 legal liability insurance covering bodily injury and/or death and/or property damage in an amount of at least US$ [insert amount] for each claim or series of claims arising out of any one incident; 31.1.3 such other insurances as may be required by the Buyer (acting in accordance with the Standard of a Reasonable and Prudent Person) in relation to the Buyer’s Facilities.

31.2 Insurances to be effected by the Seller

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The Seller will throughout the Basic Term take out and maintain in force at its own expense the following insurances: 31.2.1 insurance covering loss of or damage to the Seller’s Facilities including insurance in respect of delay in start-up and business interruption; 31.2.2 legal liability insurance covering bodily injury and/or death and/or property damage in an amount of at least US$ [insert amount] for each claim or series of claims arising out of any one incident; 31.2.3 such other insurances as may be required by the Seller (acting in accordance with the Standard of a Reasonable and Prudent Person) in relation to the Seller’s Facilities.

31.3 Identity of insurers and waivers of subrogation The policies of insurance to be taken out and maintained by or on behalf of each Party in accordance with this Article 31 will be taken out and maintained with insurers of sound financial reputation and will each contain a waiver of subrogation in respect of claims against the other Party, its connected persons and insurers.

31.4 Information disclosure Each Party may (subject to Article 28.2) disclose to the relevant insurers any information necessary to take out and maintain the policies of insurance required in accordance with this Article 31.

31.5 Certificates Copies of all certificates and renewal certificates in relation to the policies of insurance required and obtained in accordance with this Article 31 will be given by each Party to the other Party within [insert number] days after the date the relevant policy of insurance is taken out or renewed.

31.6 Insurance claims Each Party will give notice to the other Party within [insert number] days of becoming aware of any claim relating to this Agreement with respect to the required policies of insurance and each Party will give to the other Party such assistance as that other Party may reasonably require for the preparation, submission and negotiation of any insurance claims.

31.7 Effect of insurance Neither failure to comply nor full compliance with the insurance covenants or obligations in accordance with this Article 31 will limit or relieve a Party of its covenants, obligations or liabilities in accordance with this Agreement.

31.8 Application of insurance Each Party will duly file all claims against the policies of insurance taken out and maintained in accordance with this Article 31 and will take all necessary steps to collect any proceeds of such claims and (provided that a Reasonable and

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Prudent Person would do so) to use such proceeds which relate to the loss of or damage to the Buyer’s Facilities (in the case of the Buyer) or which relate to the loss of or damage to the Seller’s Facilities (in the case of the Seller) promptly to reinstate such Buyer’s Facilities or Seller’s Facilities.

32. Notices 32.1 Method of giving notices Any request or notice to be given by or to a Party in accordance with this Agreement will be made in writing and in the English language and will be delivered by any form of courier (including by hand) or sent by recorded or registered postal delivery or sent by e-mail to the following address or to such other address as a Party may from time to time designate by notice to the other Party: To the Seller or the Seller’s Representative: [insert contact details] To the Buyer or the Buyer’s Representative: [insert contact details]

32.2 Receipt of notices Any notice given to a Party in accordance with this Agreement will be deemed to have been received by that Party as follows: 32.2.1 if delivered by any form of courier (including by hand) or sent by recorded or registered postal delivery: if delivered during business hours on a Business Day, when delivered; if not delivered during business hours on a Business Day, at [insert number] hours on the next Business Day; 32.2.2 if sent by e-mail: when recorded as sent by the sending Party.

33. Warranties and Representations 33.1 The Buyer’s warranties and representations The Buyer warrants and represents to the Seller that: 33.1.1

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the Buyer is duly incorporated and validly existing in accordance with [insert location] law, is a separate legal entity capable of suing and being sued and has the power, capacity and authority to own its assets and to conduct its business as currently conducted and as contemplated in this Agreement; 33.1.2 neither the execution of this Agreement nor the performance of its covenants or obligations in accordance with this Agreement by the Buyer violates any law or regulation to which the Buyer is subject or any of the documents constituting the Buyer or breaches any agreement to which the Buyer is party or which is binding on the Buyer or any of its assets; 33.1.3 this Agreement constitutes a valid, binding and enforceable obligation of the Buyer in accordance with its terms and this Agreement is in the proper legal form for enforcement against the Buyer in [insert location] and contains no provision which is contrary to [insert location] law or which would not be upheld by the courts of [insert location]; 33.1.4 as at the Start Date the Buyer has full legal title to and is in possession of the Buyer’s Facilities and there are no Third Party interests (including any lien, mortgage, pledge, escrow, option, lease, licence) in or over any of the Buyer’s Facilities; 33.1.5 the Buyer is not party to any litigation, arbitration or other proceedings nor subject to any investigation or enquiry nor bound by any order, injunction, declaration, judgment or award of any court, arbitrator or other forum which could adversely affect the ability of the Buyer to perform its covenants or obligations in accordance with this Agreement; 33.1.6 the Buyer is not entitled to any immunity from suit, execution, attachment, or other legal or arbitral proceedings in [insert location].

33.2 The Seller’s warranties and representations The Seller warrants and represents to the Buyer that: 33.2.1 the Seller is duly incorporated and validly existing in accordance with [insert location] law, is a separate legal entity capable of suing and being sued and has the power, capacity and authority to own its assets and to conduct its business as currently conducted and as contemplated in this Agreement; 33.2.2 neither the execution of this Agreement nor the performance of its covenants or obligations in accordance with this Agreement by the Seller violates any law or regulation to which the Seller is subject or any of the documents constituting the Seller or breaches any agreement to which the Seller is party or which is binding on the Seller or any of its assets; 33.2.3 this Agreement constitutes a valid, binding and enforceable obligation of the Seller in accordance with its terms and this Agreement is in the proper legal form for enforcement against the Seller in [insert location] and contains no provision which is contrary to [insert location] law or which would not be upheld by the courts of [insert location];

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33.2.4 as at the Start Date the Seller has full legal title to and is in possession of the Seller’s Facilities and there are no Third Party interests (including any lien, mortgage, pledge, escrow, option, lease, licence) in or over any of the Seller’s Facilities; 33.2.5 the Seller is not party to any litigation, arbitration or other proceedings nor subject to any investigation or enquiry nor bound by any order, injunction, declaration, judgment or award of any court, arbitrator or other forum which could adversely affect the ability of the Seller to perform its covenants or obligations in accordance with this Agreement; 33.2.6 the Seller is not entitled to any immunity from suit, execution, attachment, or other legal or arbitral proceedings in [insert location]; 33.2.7 all quantities of Gas delivered by the Seller to the Buyer in accordance with this Agreement at the Delivery Point are free of an liens, charges, encumbrances or adverse claims as to title.

33.3 Date and duration of warranties and representations The warranties and representations set out in Article 33.1 and in Article 33.2 are given solely as at the Execution Date except as follows: 33.3.1 the warranties and representations set out in Article 33.1.4 and in Article 33.2.4 are given solely as at the dates specified therein; 33.3.2 the warranties and representations set out in each of Articles 33.1.1, 33.1.2, 33.1.3, 33.1.5 and 33.1.6 and in each of Articles 33.2.1, 33.2.2, 33.2.3, 33.2.5, 33.2.6 and 33.2.7 will remain true and accurate and in force throughout the Basic Term as if given or made on each day during the Basic Term with reference to the facts and circumstances then subsisting.

33.4 Notice regarding warranties and representations Each Party will give notice to the other Party of any matter or event coming to its attention at any time which shows or may show that any warranty or representation made by it set out in Article 33.1 or Article 33.2 was when made or at any time thereafter has become untrue, inaccurate or misleading in any respect.

33.5 Breach of warranty Each Party will indemnify the other Party against any loss or liability arising from any breach of the warranties and representations given in accordance with this Article 33.

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34. Representatives 34.1 Appointment of the Seller’s Representative The Seller may designate and give notice to the Buyer of a person to act as its representative (the Seller’s Representative) who is authorised to and will act as the representative of the Seller for the following purposes: 34.1.1 the giving and receiving of all nominations, notices, statements and information required in accordance with this Agreement; 34.1.2 performance of the responsibilities of the Seller in accordance with Schedule 3; 34.1.3 such other purposes as the Seller may give notice of to the Buyer.

34.2 Appointment of the Buyer’s Representative The Buyer may designate and give notice to the Seller of a person to act as its representative (the Buyer’s Representative) who is authorised to and will act as the representative of the Buyer for the following purposes: 34.2.1 the giving and receiving of all nominations, notices, statements and information required in accordance with this Agreement; 34.2.2 performance of the responsibilities of the Buyer in accordance with Schedule 3; 34.2.3 such other purposes as the Buyer may give notice of to the Seller.

34.3 Deemed notices 34.3.1 Any nomination, notice, statement or information given by the Seller’s Representative to the Buyer or to the Buyer’s Representative will be deemed to be given by the Seller and any nomination, notice, statement or information given to the Seller’s Representative by the Buyer or by the Buyer’s Representative will be deemed to be given to the Seller. 34.3.2

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Any nomination, notice, statement or information given by the Buyer’s Representative to the Seller or to the Seller’s Representative will be deemed to be given by the Buyer and any nomination, notice, statement or information given to the Buyer’s Representative by the Seller or by the Seller’s Representative will be deemed to be given to the Buyer.

34.4 Revocation of appointments The Seller may revoke the appointment of the Seller’s Representative and the Buyer may revoke the appointment of the Buyer’s Representative in each case at any time but subject to giving notice thereof to the other Party, provided that any such notice of revocation will not have retrospective effect.

35. General 35.1 Entire agreement 35.1.1 This Agreement (and the Buyer’s Guarantee if and when provided in accordance with Article 17) will constitute the entire agreement between the Parties as to the subject matter of this Agreement and will supersede and take the place of all documents, minutes of meetings, letters or notes which may be in existence at the Execution Date and of all written or oral statements, representations and warranties which may have been made by or on behalf of the Parties as to such subject matter. 35.1.2 In entering into this Agreement a Party may not rely on any statement, representation, warranty, collateral contract or other assurance (except those expressly set out in this Agreement) made by or on behalf of any other Party before the Execution Date and each Party waives all rights, interests and remedies which but for Article 25 might otherwise be available to that Party in respect of any such statement, representation, warranty, collateral contract or other assurance, provided that nothing in Article 25 will limit or exclude any liability for fraud.

35.2 Amendment Subject to Article 35.4 or Article 35.11, this Agreement may only be amended or supplemented by a written agreement of the Parties which is expressed to be an amendment of or a supplement to this Agreement.

35.3 Waiver and exercise 35.3.1 The waiver, release or modification by a Party of a default by the other Party in the performance by that other Party of any of its covenants or obligations in accordance with this Agreement will not operate or be construed as a waiver, release or modification by the default waiving Party of any other default by the other Party. 35.3.2

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The waiver, release or modification by a Party of any of the rights or interests of the right waiving Party under or in respect of this Agreement will not operate or be construed as a waiver, release or modification of any other right or interest of the right waiving Party under or in respect of this Agreement. 35.3.3 Except where expressly provided to the contrary in this Agreement, a Party will not have and will not be deemed to have waived, released or modified any of its rights or interests or the requirement for or any default in the performance of the covenants or obligations of the other Party under or in respect of this Agreement unless the waiving Party has expressly stated in writing that it does so waive, release or modify such rights or interests or the requirement for or any default in the performance of such covenants or obligations. 35.3.4 The exercise by a Party of any of its rights or interests under or in respect of this Agreement will not constitute a waiver of nor in any way prejudice any other rights or interests available to that Party under or in respect of this Agreement and will be without prejudice to any liability of that Party for a breach of this Agreement.

35.4 Severability 35.4.1 If and for so long as any provision of this Agreement is found by a court or other tribunal of competent jurisdiction or is declared by applicable law to be invalid then such invalid provision will be deemed to be severed from this Agreement to the extent of its invalidity. The remaining provisions of this Agreement will continue in full force and effect and such severance will not (to the greatest possible extent) affect the validity or operation of any other provision of this Agreement. 35.4.2 In the event of the severance of a provision from this Agreement in accordance with Article 35.4.1 the Parties will meet and in good faith discuss and attempt to agree in writing a mutually satisfactory valid and enforceable provision to act as a replacement for the severed provision. 35.4.3 Any provision which has been severed from this Agreement in accordance with Article 35.4.1 will (if the Parties so agree in writing and subject to the modification or removal by the Parties of any replacement provision which has been implemented in accordance with Article 35.4.2) be reinstated to this Agreement upon the removal of the reason for the invalidity of the severed provision.

35.5 Rounding All roundings of values and numbers required for the purposes of this Agreement will be made according to ISO 31-0:1992(E) Annex B relating to rules for the rounding of numbers. If the value to be rounded is equally located between two numbers then rounding will be made to the higher integer number according to ISO 31-0:1992(E) Annex B Rule B.

35.6 Disclaimer of agency This Agreement does not constitute a Party as the agent, partner or legal representative of the other Party for any purpose whatsoever and a Party will have no right or authority (express or implied) to assume or to create any covenant, obligation or responsibility on behalf of or in the name of the other Party. © 2023 Thomson Reuters.

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35.7 Further assurances Each Party will perform or procure the performance of all such acts and things and will execute and deliver or procure the execution and delivery of all such documents as may be required by applicable law or as the other Party may reasonably require in order to implement or to give legal effect to this Agreement.

35.8 Exclusion of implied terms Any term, condition or warranty (including any relating to merchantability, satisfactory quality or fitness for purpose of goods, price and payment, delivery, transfer of title and risk, performance or termination) which might be implied as a term of this Agreement by law, treaty, custom and practice or otherwise is hereby excluding from application to this Agreement to the fullest extent possible.

35.9 Language This Agreement is prepared in the English language. In the event of translation of this Agreement into another language the English language version of this Agreement will prevail.

35.10 Costs Each Party will be solely responsible for its own costs and expenses (including the costs and expenses of professional advisers) incurred in connection with the preparation, negotiation, execution and ongoing management of this Agreement.

35.11 Relationship with the Pipeline System Rules 35.11.1 The provisions contained in Article 19, Schedule 3 and Schedule 5 are consistent with and reflect the Seller’s rights, interests, covenants or obligations in accordance with the Gas Transportation Agreement and the prospective Pipeline System Rules as at the Execution Date. 35.11.2 The Buyer acknowledges that the Pipeline System Rules when executed, issued and effective may be amended from time to time in accordance with their terms and that any such amendments thereto could necessitate a reciprocal amendment to any of the provisions contained in Article 19, Schedule 3 or Schedule 5. 35.11.3 In the event that any amendments to this Agreement are required in consequence of an amendment to the Pipeline System Rules then: (i)the Seller will give the Buyer as much notice as it is reasonably able to of any proposed amendments to the Pipeline System Rules; (ii)the Seller will make such amendments to this Agreement and will promptly notify the Buyer of such amendments, which will thereupon become effective.

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35.12 Application of ABC provisions 35.12.1 Each Party covenants and undertakes that it will not conduct itself in relation to this Agreement in a way which is or which could be in violation of or inconsistent with, or which exposes or which could expose itself or the other Party to any loss or liability for a breach of, any of the ABC Provisions. 35.12.2 A Party will not be obliged to perform any obligation under or in respect of this Agreement to the extent that doing so is or could be in violation of or inconsistent with, or which exposes or which could expose itself or the other Party to any loss or liability for a breach of, any of the ABC Provisions.

36. Applicable Law and Jurisdiction 36.1 Applicable law This Agreement and any matter relating to this Agreement will be governed by and construed in accordance with English law (excluding any choice of law rules which would refer this Agreement or any matter relating to this Agreement to the laws of another jurisdiction).

36.2 Jurisdiction The courts of England and Wales will have exclusive jurisdiction in respect of this Agreement. IN WITNESS whereof the Parties have entered into this Agreement as of the Execution Date: SIGNED for and on behalf of the Seller: By:___________ Name: Position: SIGNED for and on behalf of the Buyer: By:___________ Name: Position: Schedule 1 — The Buyer’s Facilities, the Delivery Point, the Pipeline, the Seller’s Facilities The Buyer’s Facilities, the Delivery Point, the Pipeline, the Seller’s Facilities Schedule 2 — The Designated Sources, the Supply Area The Designated Sources, the Supply Area Schedule 3 — Measurement © 2023 Thomson Reuters.

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Measurement Schedule 4 — The Daily Contract Quantity The Daily Contract Quantity Schedule 5 — The Specification All quantities of Gas delivered or to be delivered by the Seller to the Buyer in accordance with this Agreement will at the Delivery Point conform to the following specification (the Specification): (1)contain zero free liquids; (2)have a water dewpoint not greater than [insert number] °C at [insert number] Pascals; (3)have a hydrocarbon dewpoint not greater than [insert number] °C at [insert number] Pascals; (4)have a minimum temperature of [insert number] °C; (5)have a maximum temperature of [insert number] °C; (6)have a GHV in the range of [insert number] to [insert number] (inclusive) Btu/scf; (7)have a Wobbe Index in the range of [insert number] to [insert number] (inclusive) Btu/scf; (8)contain not more than [insert number] % carbon dioxide by volume; (9)contain not more than [insert number] % oxygen by volume; (10)contain not more than [insert number] % nitrogen by volume; (11)contain not more than [insert number] parts per million by weight (ppmw) of total sulphur compounds; (12)contain not more than [insert number] parts per million by weight (ppmw) of magnesium; (13)contain not more than [insert number] parts per million by volume (ppmv) of mercury; (14)contain not more than [insert number] parts per million by volume (ppmv) of hydrogen sulphide; (15)contain not less than [insert number] % methane by volume, and will also be commercially free from objectionable odours, dust, solid or fluid matter, waxes or gums which might cause damage to or interference with any equipment through which the Gas flows. Schedule 6 — The Initial Reserves Certificate The Initial Reserves Certificate

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Appendix C - Pro Forma Gas Transportation Agreement Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section II Appendix C - Pro Forma Gas Transportation Agreement

Gas Transportation Agreement for the [insert project] between [insert Transporter] and [insert Shipper] [insert date] Table of Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31.

DEFINITIONS AND INTERPRETATION TERM OBLIGATIONS FACILITIES CAPACITY RESERVATION LINEFILL GAS COMMISSIONING GAS FUEL GAS CUSTODY, TITLE AND RISK TRANSFERS TAXES SHIP OR PAY OUTSTANDING ANNUAL DEFICIENCIES CARRY FORWARD TARIFF RELIEF OF HARDSHIP INVOICING AND PAYMENT SHIPPER’S GUARANTEE PIPELINE SYSTEM RULES NOMINATIONS LOST GAS QUALITY AND OFF-SPECIFICATION GAS MEASUREMENT MAINTENANCE FORCE MAJEURE LIABILITIES AND LIMITATIONS TRANSFERS TERMINATION CONFIDENTIALITY ARBITRATION EXPERT DETERMINATION INSURANCE

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32. NOTICES 33. WARRANTIES AND REPRESENTATIONS 34. REPRESENTATIVES 35. GENERAL 36. APPLICABLE LAW AND JURISDICTION SCHEDULES 1. The Delivery Point, the Input Point 2. The Delivery Point Specification, the Input Point Specification 3. The Shipper’s Facilities, the Transporter’s Facilities 4. Measurement 5. The Reserved Capacity 6. Pipeline System Rules principles C-001

THIS AGREEMENT is made this [insert] day of [insert] 20[insert] BETWEEN: (1)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Transporter); and (2)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Shipper), (each of the Transporter and the Shipper called a Party and together called the Parties). WHEREAS: (A)The Shipper has authority in accordance with the Shipper’s Concession to produce, transport and sell Gas. (B)The Shipper has agreed to sell Gas to the Buyer and to transport such Gas to the Delivery Point in accordance with the Gas Sales Agreement in its capacity as the seller therein. (C)The Transporter has authority in accordance with the Transporter’s Concession to own and operate the Transporter’s Facilities. (D)The Shipper wishes to utilise the Transporter’s Facilities for the transportation of Gas from the Input Point to the Delivery Point. (E)The Transporter will reserve the Reserved Capacity within the Transporter’s Facilities for the Shipper and will provide the Transportation Services to the Shipper in accordance with this Agreement. In consideration of their mutual covenants and obligations contained in this Agreement the Parties agree as follows:

1. Definitions and Interpretation 1.1 Definitions Except where expressly provided to the contrary in this Agreement the following terms and expressions will have the following meanings: ABC Provision means any applicable law or regulation, embargo or economic control imposed by a state or by a Governmental Authority, regional agency or multinational agency which regulates bribery or corruption.

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Acceptable Bank means a bank or financial institution incorporated in [insert location] with a long-term credit rating of not less than [insert value] from [insert rating agency] and having net assets of not less than US$ [insert number] and which is otherwise acceptable to the Transporter (acting reasonably). Acceptable Guarantor means a company which at all times remains an Affiliate of the Shipper and which has net assets of not less than US$ [insert number] and which is otherwise acceptable to the Transporter (acting reasonably). Act of Insolvency means in respect of a Party its insolvency, winding-up, dissolution, administration or liquidation, the making by it of any arrangement or composition with its creditors or the taking of possession by an encumbrancer of, or the appointment of a receiver or administrative receiver over, the whole or any substantial part of its property or assets or its ceasing or threatening to cease to carry on business and any equivalent or analogous procedures by whatsoever name known and in whatsoever jurisdiction. Affected Party means a Party claiming relief in accordance with Article 24 in respect of a Force Majeure Event. Affiliate means in relation to any person or Party, another person: (i)that is directly or indirectly controlled by such first-mentioned person or Party; (ii)that directly or indirectly controls such first-mentioned person or Party; (iii)that is directly or indirectly controlled by a person that also directly or indirectly controls such first-mentioned person or Party. Agreement means this agreement as the same may from time to time be amended, supplemented or transferred in accordance with its terms. Annual Reserved Capacity or ARC means in respect of any Contract Year the Reserved Capacity for that Contract Year multiplied by the number of days in that Contract Year. Annual Ship or Pay Payment means in respect of any Contract Year any Annual Deficiency for that Contract Year multiplied by the arithmetic average of the Tariff for that Contract Year. Atmospheric Pressure means an absolute pressure of 29.92 inches of mercury, where an inch of mercury is that pressure exerted by a column of mercury 1 inch high at 0°C and under standard gravitational force (acceleration of 32.174 feet per second per second) equal to 0.491154 pounds of force per square inch. Authorisation means any approval, authorisation, consent, exemption, licence, order or permission of any Governmental Authority which is or was necessary for the performance by a Party of any covenant or obligation or for the exercise by a Party of a right or interest in accordance with this Agreement. Basic Term means the period of this Agreement from the Execution Date until the Termination Date. British thermal unit or Btu means the amount of heat equal to 1,055.06 Joules. Business Day means any day other than a Saturday, a Sunday or a public holiday in [insert location]. Buyer means [insert name], the person identified as such in the Gas Sales Agreement. Commissioning Date means the date which is [insert number] days prior to the Start Date. Commissioning Gas Price means US$ [insert amount] per mscf. Commissioning Period means the period from the Commissioning Date until the Start Date. Confidential Information means the content of this Agreement and all information disclosed in the process of negotiating or otherwise existing in connection with this Agreement but excluding any information which when used or disclosed has become part of the public domain other than through a breach of this Agreement or which has been lawfully acquired (other than in accordance with Article 28) by the Party or person using the same or to whom disclosure is made. Consequential Loss means any of the loss or deferment of profit, opportunity or anticipated earnings, the loss of goodwill or any special, indirect or consequential loss, damage or expenditure which results from a breach of this

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Agreement by a Party which was not, at the time of the commission of the breach, reasonably foreseeable by the Party in breach as a likely consequence to the other Party of the breach. Contract Month means a period of time during the Delivery Period from the first day of each calendar month until the last day of the same calendar month, provided that: (i)the first Contract Month will be from the Start Date until the last day of the calendar month in which the Start Date occurs; (ii)the last Contract Month will be from the first day of the calendar month in which the last day of the Delivery Period occurs until the last day of the Delivery Period, and in each case any quantities of Gas will be pro-rated accordingly. Contract Time means Greenwich Mean Time [plus [insert number] hours]. Contract Year means a period of time during the Delivery Period from the first day of [insert month] in any calendar year until the last day of [insert month] in the same calendar year, provided that: (i)if the Start Date falls on a date other than the first day of [insert month] then the first Contract Year will be from the Start Date until the last day of [insert month] in the calendar year in which the Start Date occurs; (ii)if the Delivery Period ends on a day which does not coincide with the end of a Contract Year then the last Contract Year will be from the last occurring first day of [insert month] prior to the date upon which the Delivery Period ends until the last day of the Delivery Period, and in each case any quantities of Gas will be pro-rated accordingly. Delivery Period means the period of this Agreement from the Start Date until the Termination Date. Delivery Point means the upstream flange of the Transporter’s Gas delivery control facilities at [insert location] as further illustrated in Schedule 1. Delivery Point Pressure means the pressure of Gas immediately upstream of the Delivery Point, expressed in Pascals. Delivery Point Specification means the Gas composition values for Gas delivered or to be delivered by the Transporter to the Shipper at the Delivery Point as set out in Schedule 2. Execution Date means the date shown above, being the date upon which this Agreement is entered into between the Parties. Fuel Gas means any quantity of Gas delivered by the Shipper to the Transporter at the Input Point in accordance with Article 8 which will be used as fuel by the Transporter in the provision of the Transportation Services. Fuel Gas Price means US$ [insert number] per mscf. Gas means any hydrocarbons or mixture of hydrocarbons and other gases consisting primarily of methane which at 15.55°C and at Atmospheric Pressure are predominantly in the gaseous state but such term will not include the separate constituents extracted before the delivery of Gas to the Transporter at the Input Point. Gas Day means a period of 24 hours commencing at [insert time]. Gas Sales Agreement means the agreement so titled and to be entered into between the Shipper (as the seller therein) and the Buyer and providing for the sale and delivery of Gas by the Shipper (as the seller therein) to the Buyer in accordance with its terms. Governmental Authority means in respect of any country any national, regional, state, municipal, local or other government or any sub-division, agency, commission or authority thereof or any quasi-governmental organization therein acting within its legal authority. Gross Heating Value or GHV means the number of Btus produced by the complete combustion at Atmospheric Pressure of 1 scf of Gas at 15.55°C with excess air at the same temperature and pressure as the Gas when the products of combustion are cooled to 15.55°C and when the water formed by combustion is condensed to the liquid state and the products of combustion contain the same total mass of water vapour as the Gas and air before combustion.

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Initial Linefill Gas means a quantity of Gas which will meet the Input Point Specification and in the aggregate not exceeding [insert number] mscf for the purpose of providing the initial fill of Gas for the Pipeline so as to raise and/ or maintain the pressure in the Pipeline from Atmospheric Pressure to [insert number] Pascals. Input Point means the downstream flange of the Transporter’s Gas delivery control facilities at [insert location] as further illustrated in Schedule 1. Input Point Pressure means the pressure of Gas immediately upstream of the Input Point, expressed in Pascals. Input Point Specification means the Gas composition values for Gas delivered or to be delivered by the Shipper to the Transporter at the Input Point as set out in Schedule 2. ISO means the International Organization for Standardisation. Joule means the unit so defined in as defined in ISO 1000:1992(E). LIBOR means in relation to any amount to which it is applied the 1 month London Interbank Offered Rate for US $ as it appears on the Bridge/Telerate screen page 3750 as at 11:00 hours (London time) (or such other page on the Bridge/Telerate screen as may replace such page which displays the London Interbank Offered Rate for US$) on the day which is 2 Business Days before the first day on which LIBOR is required to apply in respect of such amount in accordance with this Agreement. If any day on which LIBOR is to be set or reset is not a Business Day in London then LIBOR will be set or reset by reference to the next Business Day in London. Lost Gas Price means US$ [insert amount] per mscf of Lost Gas. Maintenance Day means a day on which Scheduled Maintenance is or is to be performed. Maximum Instantaneous Rate means in respect of each Gas Day the rate of delivery of Gas required to deliver [insert number] % of the Reserved Capacity for the Gas Day at a uniform rate over the Gas Day. mscf means 1,000 scf. Nomination Period means in respect of each Gas Day during the Delivery Period any of the [insert number] consecutive [insert number] hour periods within such Gas Day and the first such Nomination Period will commence at [insert time] hours on each Gas Day. Other Shipper means any person other than the Shipper upon whose behalf the Transporter provides any transportation services through the Pipeline. Outstanding Annual Deficiency means any Annual Deficiency or accrual of Annual Deficiencies in respect of which the Shipper has made an Annual Ship or Pay Payment which is eligible to be recovered but which has not been recovered by the Shipper in accordance with Article 12. Pascal means the unit so defined in as defined in ISO 1000:1992(E). Pipeline means the pipeline and associated facilities owned and operated by the Transporter as further identified in Schedule 3. Pipeline System Rules means the rules to be executed and issued by the Transporter in accordance with Article 18 which will provide for the operation of the Pipeline for the benefit of the Shipper and any Other Shippers. Rating Agency means [insert name] credit rating agency (or if [insert name] has ceased to exist and has not been replaced then a reasonably equivalent credit rating agency, in which case the credit ratings referred to in Article 17 will be revised to an appropriate equivalent standard). Reasonable and Prudent Person means a person seeking in good faith to perform its covenants or obligations in accordance with this Agreement and in so doing and in the general conduct of its undertaking exercising that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced person complying with all applicable laws engaged in the same type of undertaking under the same or similar circumstances and conditions and the expression Standard of a Reasonable and Prudent Person will be construed accordingly. Schedule means a schedule to this Agreement.

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Scheduled Maintenance means in relation to any of the Transporter’s Facilities or the Shipper’s Facilities the inspection, maintenance, repair, modification or replacement thereof as determined in accordance with Article 23. Shipper’s Approvals means all Authorisations required from any Governmental Authority of [insert location] in connection with the design, construction, installation, commissioning, maintenance, repair and operation of the Shipper’s Facilities. Shipper’s Associated Persons means any Affiliate, agent or contractor of the Shipper, any director, officer or employee of the Shipper or of any of the foregoing persons and any dependent of any such director, officer or employee. Shipper’s Concession means the concession dated [insert date] and granted to the Shipper by [insert grantor] entitling the Shipper to own and operate the Shipper’s Facilities. Shipper’s Documents means the Gas Sales Agreement and the Shipper’s Concession. Shipper’s Facilities means the Gas delivery and reception facilities which are necessary to deliver Gas at the Input Point and to take delivery of Gas at the Delivery Point in accordance with the requirements of this Agreement as further identified Schedule 3. Shipper’s Stock Account means the designated account of the Shipper which will be maintained by the Transporter and which will record the volumes of Gas from time to time held in the Pipeline by the Transporter for the account of the Shipper. SPE means the Society of Petroleum Engineers (or if the SPE has ceased to exist and has not been replaced then a reasonably equivalent oil and gas reserves determination agency). Standard cubic foot or scf means that quantity of Gas which at 15.55°C in dry condition and at Atmospheric Pressure and the Gas being saturated by water vapour at the same temperature and pressure occupies a volume of 1 cubic foot. Tariff means the tariff as determined in accordance with Article 14. Taxes means any tax, impost, levy or duty including value added tax, goods and services tax, excise duties and customs duties, withholding taxes or any amount charged by reference to the energy value and/or the carbon content of Gas arising in respect of the production, processing, transportation, sale, consumption or resale of Gas which is transported in accordance with this Agreement. Termination Date means the date upon which this Agreement expires or is otherwise terminated in accordance with its terms or in accordance with applicable law. Third Party means any person other than a Party. Third Party Account means the account numbered [insert number] and held at [insert bank name] in the name of [insert account name] or such other account as the Parties may agree in writing. Threshold Amount means US$ [insert amount]. Transportation Services means the services to be provided by the Transporter as specified in Article 3.1. Transporter’s Approvals means all Authorisations required from any Governmental Authority of [insert location] in connection with the design, construction, installation, commissioning, maintenance, repair and operation of the Transporter’s Facilities. Transporter’s Associated Persons means any Affiliate, agent or contractor of the Transporter, any director, officer or employee of the Transporter or of any of the foregoing persons and any dependent of any such director, officer or employee. Transporter’s Concession means the concession dated [insert date] and granted to the Transporter by [insert grantor] entitling the Transporter to operate the Transporter’s Facilities. Transporter’s Facilities means the Gas reception, transportation and delivery facilities (including the Pipeline) which are necessary to transport Gas to the Delivery Point in accordance with this Agreement as further identified in Schedule 3.

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UNCITRAL Rules means the UNCITRAL arbitration rules contained in Resolution 31/98 adopted by the United Nations General Assembly on December 15, 1976 and entitled “Arbitration Rules of the United Nations Commission on International Trade Law”. US$ means the lawful currency from time to time of the United States of America. US CPI Index means the percentage increase in the Consumer Price Index for all Urban Consumers as published by the U.S. Department of Labor, Bureau of Statistics at https://www.bls.gov/cpi/. Week means a period of 7 days from [insert day] until [insert day]. Wilful Misconduct means any intentional, conscious or reckless disregard of any provision of this Agreement by a Party which is not justifiable by any special circumstances but which will not include any omission, error of judgment or mistake made by such Party in the exercise in good faith of any function, authority or discretion conferred upon that Party in accordance with this Agreement.

1.2 Interpretation Except where expressly provided to the contrary in this Agreement: 1.2.1 the Schedules form part of this Agreement and in the event of any conflict between the main body of this Agreement and a Schedule the main body of this Agreement will prevail; 1.2.2 reference to any consent not to be unreasonably withheld is deemed to be qualified by the requirement that such consent will not also be unreasonably conditioned or delayed; 1.2.3 reference to include and including is deemed to be qualified by the additional term without limitation; 1.2.4 reference to any publication, statute, rule, regulation, instrument or standard means the same as amended, supplemented or replaced from time to time; 1.2.5 reference to any agreement means the same as amended, supplemented or replaced from time to time; 1.2.6 in the computation of periods of time from a specified day to a later specified day: (i)from means from and including and until and to means to and including; (ii)any requirement that an action may or will be taken within a specified number of days means that such action may or will be taken within the number of days so specified starting at 00:00 hours on the day on which the requirement to take such action arose; 1.2.7

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reference to time means Contract Time and reference to a date for the performance of a covenant or obligation means the date in [insert location]; 1.2.8 all quantities of Gas referred to or expressed are in mscf; 1.2.9 reference to any amount of money means that amount in US$; 1.2.10 reference to Articles and Schedules means reference to Articles of and Schedules to this Agreement; 1.2.11 headings are inserted for ease of reference only and will not affect interpretation nor have any legal effect; 1.2.12 unless the context requires otherwise, words denoting the singular include the plural and vice versa and words denoting any gender include all genders; 1.2.13 any remedy which provides for the payment of liquidated damages by a Party: (i)represents a genuine pre-estimate of the likely or possible loss or damage which might otherwise be suffered by the Party to whom such liquidated damages are payable in consequence of the act or omission of the Party liable to pay such liquidated damages; and (ii)fairly reflects an amount which is proportionate to the protection of the legitimate commercial interests of the Party to whom such liquidated damages are payable in enforcing its rights in accordance with this Agreement, and will not in either case in any way be construed as a penalty; 1.2.14 any good faith best estimate which is given by a Party when required in accordance with this Agreement is non-binding and given for information only and the Party giving such good faith best estimate will have no liability to the other Party for any inaccuracy therein; 1.2.15 no rule of construction will apply to the disadvantage of a Party because that Party was responsible for the preparation of this Agreement or any part of it.

1.3 Succession 1.3.1 This Agreement will bind and enure to the benefit of the Parties and their respective successors and permitted assigns.

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1.3.2 In this Agreement reference to any Party or any person includes that Party’s or that person’s successors and permitted assigns

2. Term 2.1 Duration This Agreement will (subject to Article 2.3) come into force on the Execution Date and will subsist for the Basic Term.

2.2 The Start Date 2.2.1 The Start Date will be the date determined in accordance with Article 2.2.2 unless the Parties otherwise agree in writing. 2.2.2 The Start Date will occur during the [insert number] day period from the day which is [insert number] days after the Effective Date (the First Window Period) and will be established in accordance with the following procedure: (i)the Shipper will give notice to the Transporter at least [insert number] days prior to the commencement of the First Window Period of a [insert number] day period falling within the First Window Period (the Second Window Period) during which the Start Date will occur or, in the absence of notice being given by the Shipperin accordance with this Article 2.2.2(i), the Second Window Period will be the last [insert number] days of the First Window Period; (ii)the Shipper will give notice to the Transporter at least [insert number] days prior to the start of the Second Window Period of the day within the Second Window Period which will be the Start Date or, in the absence of notice being given by the Shipper in accordance with this Article 2.2.2(ii), the Start Date will be the last day of the Second Window Period.

2.3 The Conditions 2.3.1 The provisions of this Agreement (except for this Article 2.3 and each of Articles 1, 3.2, 3.3, 4.3, 10 and 24 to 35 (inclusive)) are conditional upon the fulfilment or the waiver of the following conditions (the Conditions): (i)the Shipper having secured the following consents: [define consents]; (ii)the Transporter having secured the following consents: [define consents]; (iii)the Gas Sales Agreement having been entered into between the Shipper (as the seller therein) and the Buyer. 2.3.2

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Each of the Conditions will be satisfied (or waived in accordance with Article 2.3.6) by [insert date] or such other date as the Parties may agree in writing (the Longstop Date). 2.3.3 Each Party will endeavour in good faith to satisfy or procure the satisfaction of each Condition for which it is responsible (the Responsible Party) by the Longstop Date and will keep the other Party reasonably informed as to the progress being made towards satisfaction of each such Condition. 2.3.4 A Party will furnish the Responsible Party upon request by the Responsible Party with reasonable assistance in fulfilling each Condition for which the Responsible Party is responsible. 2.3.5 Promptly upon the satisfaction of any Condition the Responsible Party will in writing give notice to the other Party of such satisfaction. 2.3.6 The requirement for the satisfaction of any Condition can only be waived by the agreement of the Parties in writing. 2.3.7 The date upon which all of the Conditions have been satisfied or waived in accordance with this Article 2.3 will be the Effective Date. 2.3.8 If any Condition is not satisfied or waived by the Longstop Date therefor: (i)the Responsible Party in respect of such Condition will promptly give notice to the other Party of the reason for the delay in satisfaction of the Condition and the revised date by which it is reasonably expected that the Condition will be satisfied; (ii)with effect from the expiry of [insert number] days after the Longstop Date, unless the relevant Condition has been satisfied or waived or the Parties have otherwise agreed in writing during such period of [insert number] days, the Party other than the Responsible Party may thereafter terminate this Agreement with immediate effect by giving notice to the other Party.

3. Obligations 3.1 Provision of the Transportation Services During the Basic Term the Transporter will: 3.1.1 receive and take delivery of Gas delivered by the Shipper at the Input Point in accordance with this Agreement, provided that the Transporter will not be obliged to do so where in the Transporter’s reasonable opinion: © 2023 Thomson Reuters.

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(i)the safe operating pressure of the Pipeline might thereby be adversely affected; (ii)the likely failure of the Shipper to take delivery of Gas at the Delivery Point might adversely affect the interests of any Other Shipper; 3.1.2 transport through the Pipeline and deliver to the Shipper at the Delivery Point such volumes of Gas from the Shipper’s Stock Account as are required to meet each Nominated Quantity of the Shipper for a Gas Day, to the extent that the aggregate of such Nominated Quantities for a Gas Day does not exceed the Reserved Capacity of the Shipper for that Gas Day (provided that the Transporter will not be required to deliver such volumes of Gas to the extent that such delivery would result in the Shipper’s Stock Account having a balance of less than zero); 3.1.3 deliver Gas to the Shipper at the Delivery Point at a reasonably even rate over the whole of each Gas Day; 3.1.4 make Gas available to the Shipper at the Delivery Point such that the Shipper may, during any [insert number] periods only of [insert number] consecutive hours during that Gas Day, take delivery of Gas at a rate up to but not exceeding the Maximum Instantaneous Rate; 3.1.5 upon request by the Shipper, use reasonable endeavours to deliver to the Shipper at the Delivery Point any volumes of Gas in excess of any Nominated Quantity of the Shipper (provided that the Transporter will not be required to deliver such volumes of Gas to the extent that such delivery would result in the Shipper’s Stock Account having a balance of less than zero); 3.1.6 maintain the Shipper’s Stock Account.

3.2 Approvals for the Transporter To the extent necessary for the Transporter to perform its covenants or obligations in accordance with this Agreement: 3.2.1 the Transporter will obtain the Transporter’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) prior to the Start Date; 3.2.2 the Transporter will maintain the Transporter’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) in force throughout the Basic Term; 3.2.3 the Transporter will maintain the Transporter’s Concession in force throughout the Basic Term.

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3.3 Approvals for the Shipper To the extent necessary for the Shipper to perform its covenants or obligations in accordance with this Agreement: 3.3.1 the Shipper will obtain the Shipper’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) prior to the Start Date; 3.3.2 the Shipper will maintain the Shipper’s Approvals (subject to Article 2.3.1 in respect of the consents defined therein) in force throughout the Basic Term; 3.3.3 the Shipper will maintain the Shipper’s Concession in force throughout the Basic Term.

3.4 The Transporter’s inability to deliver Gas 3.4.1 If in respect of a Nomination Period the Transporter has or will have insufficient quantities of Gas to deliver the Nominated Quantity for such Nomination Period then: (i)the Transporter will promptly give notice to the Shipper (a Gas Deficiency Notice) of such insufficient quantities of Gas; (ii)such quantities of Gas that the Transporter may have available for delivery in respect of the Nominated Quantity and to any Other Shipper from the Transporter at the Delivery Point (if any) will be allocated between the Shipper and such Other Shippers in the proportion that the Nominated Quantity bears to such Other Shippers’ nominations. 3.4.2 When the Transporter has or will have sufficient quantities of Gas to recommence the deliveries of Gas to deliver the Nominated Quantity for a Nomination Period then the Transporter will promptly give notice to the Shipper (a Gas Deficiency Remediation Notice) of such sufficient quantities of Gas. 3.4.3 The Shipper may within [insert number] days of the allocation of any quantities of Gas made by the Transporter in accordance with Article 3.4.1(ii) request a verification (to be performed by an independent auditor appointed by and at the Shipper’s expense) of such allocation, whereupon the Transporter will make available such information as the auditor may reasonably require in order to verify that such allocation has been properly made.

3.5 The Shipper’s inability to take delivery of Gas If in respect of a Nomination Period the Shipper is or will be unable to deliver any quantity of Gas at the Input Point or to take delivery of any quantity of Gas at the Delivery Point then the Shipper will promptly give notice to the Transporter of such inability to deliver or to take delivery of Gas.

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4. Facilities 4.1 The Transporter’s Facilities 4.1.1 The Transporter will fully and properly design, construct, install and commission the Transporter’s Facilities prior to the Start Date. 4.1.2 Throughout the Basic Term the Transporter will maintain, repair and operate the Transporter’s Facilities.

4.2 The Shipper’s Facilities 4.2.1 The Shipper will fully and properly design, construct, install and commission the Shipper’s Facilities prior to the Start Date. 4.2.2 Throughout the Basic Term the Shipper will maintain, repair and operate the Shipper’s Facilities.

4.3 Liaison between the Parties From the Execution Date until the Start Date the Parties will meet no less frequently than once every [insert number] days in order to keep each other informed with regard to the progress of the design, construction, installation, commissioning and interconnection of the Transporter’s Facilities (in the case of the Transporter) and of the design, construction, installation, commissioning and interconnection of the Shipper’s Facilities (in the case of the Shipper).

4.4 Use of facilities Use of the Transporter’s Facilities for the transportation of Gas on behalf of any Other Shipper will be without prejudice to the covenants, obligations or liabilities of the Transporter in accordance with this Agreement with respect to the provision of the Transportation Services to the Shipper.

4.5 Access to facilities 4.5.1 If the Transporter has failed to deliver to the Shipper at the Delivery Point a quantity of Gas equal to the Nominated Quantity for a Nomination Period (whether Article 20 or Article 24 will apply in respect of such failure) then (subject to Article 4.5.3) the Transporter will promptly upon receipt of notice given by the Shipper give or procure (as far as it

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is reasonably able to) access to the Transporter’s Facilities for a reasonable number of representatives of the Shipper to examine the circumstances of the Transporter’s failure to so deliver Gas. 4.5.2 If the Shipper is unable to deliver Gas at the Input Point and/or to take delivery of Gas at the Delivery Point and has sought relief in accordance with Article 24 in respect of such inability then (subject to Article 4.5.3) the Shipper will promptly upon receipt of notice given by the Transporter give or procure (as far as it is reasonably able to) access to the Shipper’s Facilities for a reasonable number of representatives of the Transporter to examine the circumstances of the Shipper’s inability to deliver and/or to take delivery of Gas. 4.5.3 The Shipper’s rights and interests in accordance with Article 4.5.1 and the Transporter’s rights and interests in accordance with Article 4.5.2 will not apply where in respect of the Transporter’s failure to deliver Gas or the Shipper’s inability to deliver or to take delivery of Gas the Party to whose facilities access is being sought has sought relief in accordance with Article 24 and the grounds upon which such relief is sought do not relate in whole or in substantial part to the Transporter’s Facilities (in respect of the Shipper’s rights or interests in accordance with Article 4.5.1) or to the Shipper’s Facilities (in respect of the Transporter’s rights or interests in accordance with Article 4.5.2). 4.5.4 A Party will promptly upon the receipt of a notice given by the other Party give or procure (as far as it is reasonably able to) access to the Shipper’s Facilities (in the case of the Shipper) or to the Transporter’s Facilities (in the case of the Transporter) for a reasonable number of representatives of that other Party to examine and confirm that: (i)a Party is complying with its covenants or obligations in accordance with Article 4.1 or Article 4.2; (ii)Scheduled Maintenance is being or has been performed in accordance with an applicable Maintenance Notification. 4.5.5 The rights, interests, covenants or obligations of the Parties in accordance with this Article 4.5 are without prejudice to the rights, interests, covenants or obligations of the Parties in accordance with Schedule 4 in respect of attendance at any verification of the Measuring Equipment. 4.5.6 The exercise by a Party of a right of access to any facilities in accordance with this Article 4.5 or in accordance with Schedule 4 will be at the sole risk and expense of the Party exercising such right of access.

4.6 Limitation of liabilities 4.6.1 The liability of the Transporter for any failure to perform its obligations in accordance with this Article 4 will be limited to the liabilities which the Transporter might otherwise have in accordance with Article 20 or Article 21 and the Transporter will not otherwise be liable to the Shipper for such failure. 4.6.2

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The liability of the Shipper for any failure to perform its obligations in accordance with this Article 4 will be limited to the obligations which the Shipper might otherwise have in accordance with Article 11 and the Shipper will not otherwise be liable to the Transporter for such failure. 4.6.3 No right to terminate this Agreement (whether expressly in accordance with this Agreement or implied by applicable law) will apply in favour of a Party in respect of the other Party’s failure to perform its obligations in accordance with this Article 4.

4.7 New input points and delivery points The Shipper may at any time during the Basic Term request additional and/or alternative points for the delivery of Gas for transportation in the Pipeline or for the taking of delivery of Gas transported in the Pipeline in accordance with this Agreement and any such additional or alternative points will thereafter become input points and/or delivery points (as appropriate). The incidence of the cost of designing, constructing, installing, commissioning, maintaining, repairing and operating the facilities at such additional and/or alternative input points and/or delivery points (as appropriate) will be agreed in writing between the Shipper and the Transporter.

4.8 Tie in of the Shipper’s Facilities The Parties will (without prejudice to their rights, interest, covenants or obligations in accordance with this Agreement) separately agree the principles and the arrangements for the tie in of the Shipper’s Facilities to the Transporter’s Facilities.

4.9 Abandonment of the Transporter’s Facilities At any time during the Basic Term the Transporter may upon giving not less than [insert number] days’ notice to the Shipper terminate this Agreement if the Transporter intends to permanently cease the transportation of Gas through the Transporter’s Facilities on behalf of the Shipper and any Other Shippers and thereafter to decommission and end all use of the Transporter’s Facilities.

5. Capacity Reservation 5.1 Capacity reservation During the Basic Term the Transporter will on each Gas Day in each Contract Year reserve, make available and provide to the Shipper that capacity in the Pipeline required to receive at the Input Point and transport and deliver at the Delivery Point that quantity of Gas specified for each Gas Day in that Contract Year in the table set out in Schedule 5 (as may be revised from time to time in accordance with this Agreement) (the Reserved Capacity).

5.2 Use of Reserved Capacity 5.2.1 The Shipper will utilise the Reserved Capacity for the purpose of transporting Gas to the Buyer for delivery in accordance with the Gas Sales Agreement.

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5.2.2 To the extent that on any Gas Day any portion of the Reserved Capacity is not or will not be utilised by the Shipper the Transporter may (without payment of compensation to the Shipper) offer such Reserved Capacity to any Other Shipper on an interruptible and reasonable endeavours basis, subject to the Transporter being able to comply at all time with its obligations in accordance with this Agreement.

5.3 Reserved Capacity reduction 5.3.1 The Shipper may at any time during a Contract Year (without payment of compensation to the Transporter) reduce the Annual Reserved Capacity applicable for the next Contract Year by giving a notice to the Transporter (a Capacity Reduction Notice) specifying the Annual Reserved Capacity that will be in force for the next Contract Year. 5.3.2 Unless otherwise agreed in writing between the Parties the reduction of the Annual Reserved Capacity which is effected by a Capacity Reduction Notice will not be greater than [insert number] % of the Annual Reserved Capacity for the Contract Year in which the Capacity Reduction Notice is given. 5.3.3 The amount of capacity in the Pipeline by which the Reserved Capacity is reduced in accordance with a Capacity Reduction Notice will be the Freed Capacity. 5.3.4 Unless otherwise agreed in writing between the Parties, the Shipper may not revoke a Capacity Reduction Notice after it is received by the Transporter and may not subsequently seek to increase the Reserved Capacity. 5.3.5 The Transporter will make the Freed Capacity available to any Third Party for the transportation of Gas through the Pipeline. 5.3.6 Upon the date that a Capacity Reduction Notice has become effective in accordance with this Article 5 the Shipper will be released from and will have no obligations or liabilities to the Transporter in accordance with this Agreement or otherwise in respect of the Freed Capacity.

5.4 Restriction on release of Reserved Capacity Without prejudice to Article 5.2 or Article 5.3, the Shipper will not release, sell or transfer all or any part of the Reserved Capacity to any Third Party without the Transporter’s prior written consent (such consent not to be unreasonably withheld).

5.5 Capacity reductions and priorities

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If at any time during the Basic Term the capacity in all or any part of the Transporter’s Facilities is reduced then the Transporter will reduce the capacity for the Shipper and for any Other Shipper whose Gas is transported through the affected part of the Transporter’s Facilities in the following order of priority: 5.5.1 firstly, any capacity which is interruptible will be reduced to the extent required; 5.5.2 secondly, if such interruptible capacity is reduced to zero, any capacity utilised in the Transporter’s Facilities in excess of the Shipper’s Reserved Capacity and any Other Shippers’ reserved capacity will be reduced to the extent required; 5.5.3 thirdly, if such excess capacity is reduced to zero and the capacity reduction occurs as a result of the act of omission of the Shipper or of any Other Shipper then the Shipper’s Reserved Capacity and any Other Shippers’ reserved capacity will be reduced accordingly to the extent required; 5.5.4 fourthly, if such reduced capacities are reduced to zero then the Shipper’s Reserved Capacity and any Other Shippers’ reserved capacity will be reduced to the extent required on a pro-rata basis by reference to the Shipper’s Reserved Capacity and any Other Shippers’ reserved capacity.

6. Linefill Gas 6.1 Provision of Initial Linefill Gas 6.1.1 During the Commissioning Period the Shipper will in response to a request made by the Transporter use reasonable endeavours to deliver Initial Linefill Gas to the Transporter at the Input Point. 6.1.2 No Tariff will be payable by the Shipper to the Transporter and no payment will be due from the Transporter to the Shipper in respect of any quantities of Initial Linefill Gas delivered by the Shipper in accordance with this Article 6. 6.1.3 Title to all quantities of Initial Linefill Gas delivered by the Shipper and taken delivery of by the Transporter in accordance with this Article 6 will remain with the Shipper and will not pass to the Transporter. 6.1.4 Custody of and the risk of loss of all quantities of Initial Linefill Gas delivered by the Shipper and taken delivery of by the Transporter in accordance with this Article 6 will pass from the Shipper to the Transporter at the Input Point.

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6.2 Replacement Linefill Gas 6.2.1 If during the Basic Term the Transporter transports Gas through the Pipeline on behalf of any Other Shipper then the Transporter will ensure that: (i)such Other Shipper will provide a volume of Gas equal to the volume of the Initial Linefill Gas provided by the Shipper in accordance with Article 6.1 multiplied by the proportion that the Other Shipper’s reserved capacity in the Pipeline bears to the total capacity of the Pipeline (Replacement Linefill Gas); (ii)a volume of Initial Linefill Gas supplied by the Shipper in accordance with Article 6.1 which is equal to such volume of Replacement Linefill Gas will immediately thereafter be released and credited to the Shipper’s Stock Account. 6.2.2 If during the Basic Term the Transporter ceases to transport Gas through the Pipeline on behalf of any Other Shipper then the Shipper will in response to a request made by the Transporter use reasonable endeavours to deliver Gas to the Transporter at the Input Point which will make good the volume of Replacement Linefill Gas which has been withdrawn from the Pipeline, which such quantity of Gas will be deemed to be Initial Linefill Gas for the purposes of this Agreement.

6.3 Initial Linefill Gas consequences 6.3.1 Any quantities of Initial Linefill Gas delivered by the Shipper in accordance with this Article 6 will not count toward satisfaction of the Shipper’s obligation to transport the Annual Ship or Pay Quantity in accordance with Article 11. 6.3.2 Subject to Article 27.6.4, all quantities of Initial Linefill Gas delivered by the Shipper in accordance with this Article 6 will not be available to the Shipper for delivery at the Delivery Point until released and credited to the Shipper’s Stock Account in accordance with Article 6.2.

7. Commissioning Gas 7.1 Provision of Commissioning Gas 7.1.1 The Shipper will in response to a request made by the Transporter use reasonable endeavours to deliver Gas to the Transporter at the Input Point for the commissioning of the Transporter’s Facilities during the Commissioning Period in the aggregate not exceeding [insert number] mscf (Commissioning Gas). 7.1.2

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No Tariff will be payable by the Shipper to the Transporter in respect of any quantities of Commissioning Gas delivered by the Shipper in accordance with this Article 7. 7.1.3 Title to all quantities of Commissioning Gas delivered by the Shipper to the Transporter in accordance with this Article 7 will pass to the Transporter when such Commissioning Gas is taken delivery of by the Transporter at the Input Point.

7.2 Commissioning Gas Price and payment 7.2.1 All quantities of Commissioning Gas delivered by the Shipper in accordance with this Article 7 will be paid for by the Transporter at the Commissioning Gas Price. 7.2.2 Payment by the Transporter to the Shipper for all quantities of Commissioning Gas delivered by the Shipper in accordance with this Article 7 will be made in accordance with Article 16.

7.3 Commissioning Gas consequences 7.3.1 Neither Article 20 nor Article 21 will apply in respect of any quantities of Commissioning Gas delivered by the Shipper or which the Shipper fails to deliver to the Transporter at the Input Point. 7.3.2 Any quantities of Commissioning Gas delivered by the Shipper in accordance with this Article 7 will not count toward satisfaction of the Shipper’s obligation to transport the Annual Ship or Pay Quantity in accordance with Article 11.

8. Fuel Gas 8.1 Provision of Fuel Gas 8.1.1 During the Basic Term the Shipper will in response to a request made by the Transporter use reasonable endeavours to deliver Fuel Gas not exceeding [insert number] mscf per Gas Day to the Transporter at the Input Point. 8.1.2 No Tariff will be payable by the Shipper in respect of any quantities of Fuel Gas delivered by the Shipper in accordance with this Article 8.

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8.1.3 Title to all quantities of Fuel Gas delivered by the Shipper in accordance with this Article 8 will pass to the Transporter when such Fuel Gas is taken delivery of by the Transporter at the Input Point.

8.2 Fuel Gas Price and payment 8.2.1 All quantities of Fuel Gas delivered by the Shipper in accordance with this Article 8 will be paid for by the Transporter at the Fuel Gas Price. 8.2.2 Payment by the Transporter to the Shipper for all quantities of Fuel Gas delivered by the Shipper in accordance with this Article 8 will be made in accordance with Article 16.

8.3 Fuel Gas consequences 8.3.1 Neither Article 20 nor Article 21 will apply in respect of any quantities of Fuel Gas delivered by the Shipper or which the Shipper fails to deliver to the Transporter at the Input Point. 8.3.2 Any quantities of Fuel Gas delivered by the Shipper in accordance with this Article 8 will not count toward satisfaction of the Shipper’s obligation to transport the Annual Ship or Pay Quantity in accordance with Article 11.

9. Custody, Title and Risk Transfers 9.1 Transfer of custody The custody of and the risk of loss of or damage to all quantities of Gas to be transported in accordance with this Agreement will transfer: 9.1.1 from the Shipper to the Transporter at the Input Point; 9.1.2 from the Transporter to the Shipper at the Delivery Point.

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9.2 Transfer of title and risk Title to all quantities of Gas to be transported in accordance with this Agreement will remain with the Shipper whilst such Gas is within the Pipeline.

10. Taxes 10.1 The Shipper’s liability to Taxes The Shipper will (subject to Article 10.3) pay or procure the payment of all Taxes arising upstream of the Input Point and downstream of the Delivery Point and will indemnify the Transporter against any loss or liability which the Transporter incurs in respect of such Taxes.

10.2 The Transporter’s liability to Taxes The Transporter will (subject to Article 10.3) pay or procure the payment of all Taxes arising in respect of the Pipeline (including at the Input Point and at the Delivery Point) and will indemnify the Shipper against any loss or liability which the Shipper incurs in respect of such Taxes.

10.3 Goods and services tax 10.3.1 The Shipper will be liable to pay any goods and services tax which is levied by any Governmental Authority on the Tariff and otherwise in respect of the provision of the Transportation Services by the Transporter. 10.3.2 The Transporter will be liable to pay any goods and services tax which is levied by any Governmental Authority on payments made for Commissioning Gas, Fuel Gas, or any other amounts payable by the Transporter to the Shipper in accordance with this Agreement.

11. Ship or Pay 11.1 The Shipper’s obligation In respect of each Contract Year the Shipper will deliver to the Transporter at the Input Point for transportation in the Pipeline and will pay the Tariff upon, or will pay the Tariff upon if not delivered to the Transporter at the Input Point for transportation in the Pipeline, a quantity of Gas which at a minimum will be equal to the Annual Ship or Pay Quantity for that Contract Year.

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11.2 The Annual Ship or Pay Quantity In respect of each Contract Year the Annual Ship or Pay Quantity will be a quantity of Gas equal to [insert number] % of the Adjusted ARC for that Contract Year.

11.3 The Adjusted ARQ 11.3.1 In respect of each Contract Year the Adjusted ARC will (subject to Article 11.3.2) be the ARC for that Contract Year after the deduction of the aggregate (without double counting) of the following quantities of Gas arising in respect of that Contract Year: (i)any quantity of Lost Gas; (ii)any quantity of Gas not delivered by the Shipper at the Input Point because of a Force Majeure Event affecting the Shipper (to the extent permitted in accordance with Article 24); (iii)any quantity of Gas not delivered by the Transporter at the Delivery Point because of a Force Majeure Event affecting the Transporter (to the extent permitted in accordance with Article 24); (iv)any quantity of Gas not transported in the Pipeline in respect of a Maintenance Day to the extent of the Maintenance Reduction applicable to such Maintenance Day; (v)any quantity of Gas transported through the Pipeline by the Transporter in accordance with Article 5.2.2; (vi)any quantity of Carry Forward Gas which has accrued from the preceding Contract Year and which has been carried forward in accordance with Article 13. 11.3.2 The Adjusted ARC in respect of each Contract Year will never be less than zero.

11.4 The Annual Deficiency 11.4.1 If in respect of a Contract Year the Shipper has not delivered to the Transporter at the Input Point for transportation in the Pipeline and paid the Tariff upon a quantity of Gas which at a minimum is equal to the Annual Ship or Pay Quantity for that Contract Year (where the quantity of Gas which the Shipper has not delivered to the Transporter at the Input Point for transportation in the Pipeline and paid the Tariff upon which is less than such Annual Ship or Pay Quantity is called the Annual Deficiency) then the Shipper will pay to the Transporter the Annual Ship or Pay Payment in respect of such Annual Deficiency. 11.4.2 Any Annual Ship or Pay Payment will be due and payable by the Shipper to the Transporter in accordance with Article 16 in the Contract Year following the Contract Year in which the Annual Deficiency arose.

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12. Outstanding Annual Deficiency 12.1 Entitlement to recovery 12.1.1 If in any Contract Year there exists an Outstanding Annual Deficiency from the preceding Contract Year then (subject to this Article 12) when in such Contract Year the Shipper has delivered to the Transporter at the Input Point for transportation in the Pipeline and has paid Tariff upon a quantity of Gas equal to the Annual Ship or Pay Quantity for that Contract Year then the Shipper may thereafter receive from the Transporter the provision of the Transportation Services for the remainder of that Contract Year at a Tariff which will equal zero in respect of a quantity of Gas up to such Outstanding Annual Deficiency. 12.1.2 If upon the expiry of a Contract Year any Outstanding Annual Deficiency has not been fully recovered by the Shipper in accordance with Article 12.1 then the Shipper will have no further right of recovery and the Transporter will have no further obligation in respect of such Outstanding Annual Deficiency.

13. Carry Forward 13.1 Carry Forward Gas If in a Contract Year the Shipper has transported (and has paid the Tariff for such transportation) a quantity of Gas which is greater than the Annual Ship or Pay Quantity for that Contract Year then (subject to Article 13.2 and/or Article 13.3) such additional quantity of Gas will be classified as Carry Forward Gas.

13.2 ARC adjustment Any quantity of Carry Forward Gas which has accrued in a Contract Year will be applied as a downward adjustment to the ARQ for the next Contract Year in accordance with Article 11.3.1(vi), provided that the quantity of Carry Forward Gas which may be so applied as an adjustment to the ARQ will be limited to a quantity of Gas equal to the ARQ for the Contract Year in which the quantity of Carry Forward Gas accrued multiplied by [insert number] % and the Shipper will have no further rights or interests in respect of any quantity of Carry Forward Gas which has accrued in a Contract Year beyond such limit.

13.3 Outstanding Annual Deficiency and Carry Forward Gas If in a Contract Year the Shipper has taken delivery of and has paid for a quantity of Gas equal to the Annual Ship or Pay Quantity for that Contract Year and the Shipper thereafter takes delivery of any further quantity of Gas: 13.3.1 where there is an Outstanding Annual Deficiency then Article 12 will apply to that further quantity of Gas; © 2023 Thomson Reuters.

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13.3.2 where there is no Outstanding Annual Deficiency then such further quantity of Gas will be Carry Forward Gas, to which this Article 13 will apply.

14. Tariff 14.1 Determination of the Tariff 14.1.1 The Tariff is expressed in US$ per mscf of Gas and will be determined by the Transporter in respect of each Contract Year in accordance with this Article 14. 14.1.2 The Tariff in respect of each Contract Year will be US$ [insert number] per mscf. 14.1.3 The Tariff which will apply to each Contract Year will be indexed according to movements on the US CPI Index which took place in the preceding Contract Year relative to a base measure of the US CPI Index for [insert year].

14.2 Tariff equivalence If at any time during the Basic Term the Transporter agrees a tariff with any Other Shipper which is lower than the Tariff then, for each day in which such lower tariff is in effect, the Transporter will ensure that the Shipper also receives the benefit of the lower tariff under this Agreement.

15. Relief of Hardship 15.1 Relief of hardship If at any time during the Basic Term a Party reasonably believes that there has been a change in the economic circumstances relating to this Agreement and in consequence thereof such Party is suffering substantial economic hardship (other than where such substantial economic hardship is or was caused by the failure of such Party to act in accordance with the Standard of a Reasonable and Prudent Person) then that Party will give notice thereof to the other Party and the Parties will promptly meet and in good faith discuss and attempt to agree in writing upon a review of the basis of the determination of the Tariff or upon such other changes to this Agreement as may reasonably be required in the circumstances to alleviate such substantial economic hardship.

15.2 Resolution of disputes

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If the Parties are unable to agree upon a review of the basis of the determination of the Tariff or upon such other changes to this Agreement in accordance with Article 15.1 within [insert number] days of the date of receipt by a Party of a notice given by a Party in accordance with Article 15.1. then either Party may refer to an Expert for determination in accordance with Article 30: 15.2.1 that substantial economic hardship has arisen; 15.2.2 of what (if any) review of the basis of the determination of the Tariff or such other changes to this Agreement may reasonably be required in the circumstances to alleviate such substantial economic hardship.

15.3 Limitations 15.3.1 Any notice given by a Party in accordance with Article 15.1 may be withdrawn at any time by that Party. 15.3.2 Any review of the basis of the determination of the Tariff or such other changes to this Agreement in accordance with this Article 15 which is agreed between the Parties in accordance with Article 15.1 or which is determined by an Expert following a reference made by a Party in accordance with Article 15.2 will (unless the Parties otherwise agree in writing) only be effective from the date of the agreement of the Parties or of such Expert’s determination and will not have retrospective effect. 15.3.3 Once a notice has been given by a Party in accordance with Article 15.1 no further notice may be given by that Party in accordance with Article 15.1 within [insert number] months of the date of receipt by the other Party of such notice. 15.3.4 Each Party may give not more than [insert number] notices in accordance with Article 15.1 during the Basic Term.

16. Invoicing and Payment 16.1 The Monthly Statement The Transporter will prepare and will give to the Shipper by not later than the [insert day] day after the end of each Contract Month a statement (the Monthly Statement) which will show in respect of the preceding Contract Month the following information: 16.1.1 the applicable Tariff;

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16.1.2 the Nominated Quantity for each Nomination Period; 16.1.3 the total quantity of Gas and the GHV of such Gas delivered by the Shipper to the Transporter at the Input Point in respect of each Nomination Period; 16.1.4 the total quantity of Gas and the GHV of such Gas delivered by the Transporter to the Shipper at the Delivery Point in respect of each Nomination Period; 16.1.5 any adjustments to the ARC due for the purpose of calculating the Adjusted ARC and the reasons for such adjustments; 16.1.6 any quantity of Gas classified as Lost Gas and any payment due from the Transporter to the Shipper in respect of such Lost Gas; 16.1.7 the outstanding balance of any Outstanding Annual Deficiency; 16.1.8 the total quantity of Fuel Gas delivered by the Shipper to the Transporter at the Input Point and the Fuel Gas Price payable in respect thereof; 16.1.9 any applicable Taxes due for payment by the Shipper; 16.1.10 the net amount payable by the Shipper to the Transporter after taking account of all the foregoing matters set out in this Article 16.1; 16.1.11 any other amount due and owing from one Party to the other in accordance with this Agreement; 16.1.12 the amount of payment due in US$ and in any currency other than US$ where Article 16.3.3 applies.

16.2 The Annual Reconciliation Statement

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The Transporter will prepare and will give to the Shipper by not later than the [insert number] day after the end of each Contract Year a statement (the Annual Reconciliation Statement) which will show in respect of the preceding Contract Year the following information: 16.2.1 the applicable Tariff; 16.2.2 the total quantity of Gas and the GHV of such Gas delivered by the Shipper to the Transporter at the Input Point; 16.2.3 the total quantity of Gas and the GHV of such Gas delivered by the Transporter to the Shipper at the Delivery Point; 16.2.4 the cumulative adjustments to the ARC due for the purpose of calculating the Adjusted ARC and the reasons for such adjustments; 16.2.5 the amount of any Annual Ship or Pay Payment due from the Shipper; 16.2.6 the cumulative quantity of Gas classified as Lost Gas and any payment due from the Transporter to the Shipper in respect of such Lost Gas; 16.2.7 the balance of any Outstanding Annual Deficiency outstanding as at the last day of the preceding Contract Year; 16.2.8 the total quantity of Fuel Gas delivered by the Shipper to the Transporter at the Input Point and the Fuel Gas Price payable in respect thereof; 16.2.9 any applicable Taxes due for payment by the Shipper; 16.2.10 the net amount payable by the Shipper to the Transporter after taking account of all the foregoing matters set out in this Article 16.2; 16.2.11 any other amount due and owing from one Party to the other in accordance with this Agreement; 16.2.12

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the amount of payment due in US$ and in any currency other than US$ where Article 16.3.3 applies.

16.3 Payment by the Shipper and the Transporter 16.3.1 By not later than [insert number] days after the day on which the Shipper has received the Monthly Statement the Shipper will make payment to the Transporter of the net amount determined to be due to the Transporter in accordance with such Monthly Statement. 16.3.2 By not later than [insert number] days after the day on which the Shipper has received the Annual Reconciliation Statement the Shipper will make payment to the Transporter of the net amount determined to be due to the Transporter in accordance with such Annual Reconciliation Statement. 16.3.3 All payments due from one Party to the other in accordance with this Agreement will be made in US$. If a Party is or becomes legally obliged to make payment in a currency other than US$ then that Party will make payment of an amount in any other currency that would result in the requisite full amount being received by the Party due to receive payment upon the conversion of that other currency into US$.

16.4 Further payment provisions 16.4.1 If any amount has been identified as due and owing from the Transporter to the Shipper in accordance with this Agreement then the Shipper will give the Transporter a fully detailed invoice in respect of such amount. 16.4.2 By not later than [insert number] days after the day on which the Transporter has received an invoice from the Shipper in accordance with Article 16.4.1 the Transporter will make payment to the Shipper of the amount due in accordance with such invoice. 16.4.3 All payments due in accordance with this Agreement will be made by electronic funds transfer to the appropriate bank account specified below or to such other bank account as a Party may from time to time give notice of to the other Party: Payments due to the Transporter: Bank name: [insert] Account number: [insert] Account name: [insert] Payments due to the Shipper: Bank name: [insert] Account number: [insert] Account name: [insert] 16.4.4

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The liability of a Party to make payment in accordance with this Agreement will be discharged upon the receipt of that payment by the Party due to receive such payment into its specified bank account. 16.4.5 Should the due date for any payment be a date other than a Business Day then payment will be made on the Business Day nearest to the due date for payment and if the due date for payment falls equally between two Business Days then payment will be made on the Business Day immediately following the due date for payment.

16.5 Set-off 16.5.1 Subject to Article 16.5.2 the Shipper will pay in full all amounts due for payment by the Shipper to the Transporter in accordance with this Agreement and will not make any set-off or deduction against any such amounts. 16.5.2 Subject to Article 16.5.3 the Shipper will be entitled to set-off against any amounts which are otherwise due for payment by the Shipper to the Transporter in accordance with this Agreement any amount which is claimed by the Shipper to be due and payable by the Transporter to the Shipper in accordance with this Agreement where such amount: (i)has been invoiced for by the Shipper in accordance with Article 16.4.1 and has not been paid when due by the Transporter in accordance with Article 16.4.2; (ii)is agreed in writing between the Parties or is resolved or determined in accordance with Article 29 or Article 30 to be due from the Transporter to the Shipper. 16.5.3 The right of the Shipper to set-off in accordance with Article 16.5.2 is subject to the following limitations: (i)in respect of each Contract Month the Shipper may only set-off up to an aggregate amount equal to [insert number] % of the amount due for payment from the Shipper to the Transporter in accordance with the Monthly Statement for the preceding Contract Month, provided that any amount that the Shipper would otherwise be entitled to setoff in accordance with Article 16.5.2 but which is in excess of the amount permitted to be set-off in accordance with this Article 16.5.3(i) may (subject always to this Article 16.5.3(i)) be carried forward and set-off against a subsequent Monthly Statement; (ii)the Shipper may not set-off any amount which the Transporter has given notice of its intention to dispute in accordance with Article 16.8.

16.6 Failure to make payment 16.6.1 If a Party fails to make payment of any amount when due in accordance with this Agreement then: (i)interest on such amount will accrue at a rate equal to LIBOR (at the rate in force on the day when such payment was due) plus [insert number] % (to accrue daily and to be compounded annually) from the day when such payment was due until the day when such payment is made;

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(ii)where the Shipper has failed to make payment the Transporter may seek to recover such amount in accordance with the Shipper’s Guarantee (where the Shipper’s Guarantee has been provided in accordance with Article 17); (iii)either Party may commence proceedings in a court of competent jurisdiction against the other Party for recovery of such amount as a debt. 16.6.2 If a failure of the Shipper to make payment of any amount due in accordance with this Agreement continues for [insert number] days beyond the day upon which such payment was due and the aggregate of any amounts which the Shipper has failed to pay and which are outstanding on such day equals or exceeds the Threshold Amount then the Transporter may, on giving not less than [insert number] days’ notice to the Shipper of its intention so to do, suspend the delivery of Gas to the Shipper until such payment is made and/or terminate this Agreement. 16.6.3 The rights and interests of the Transporter in accordance with Article 16.6.1 or Article 16.6.2 will not apply in respect of the failure of the Shipper to make payment of any amount due in accordance with this Agreement where the Shipper has exercised or is exercising its rights and interests in accordance with Article 16.5.2 in respect of such amount. 16.6.4 The rights and interests of either Party in accordance with Article 16.6.1 or the rights and interests of the Transporter in accordance with Article 16.6.2 will not apply where the amount which has not been paid is the subject of a notice of an intention to dispute given in accordance with Article 16.8.

16.7 Verification 16.7.1 For a period of the first [insert number] days after the end of each Contract Year a Party may request the other Party to produce such evidence as may reasonably be required by the requesting Party to verify the accuracy of any previous invoice, statement or computation made in respect of such Contract Year. 16.7.2 If any evidence produced in accordance with Article 16.7.1 reveals any inaccuracy in any previous invoice, statement or computation then (at the option of the Party to whom payment of an amount may be due in respect of such inaccuracy) an invoice for the necessary adjustment to such invoice, statement or computation will be prepared by that Party and given to the other Party for payment by not later than [insert number] days after the day on which such invoice is received together with interest at on such amount at a rate equal to LIBOR (at the rate in force on the day when such inaccuracy first arose) plus [insert number] % (to accrue daily and to be compounded annually) from the day when such inaccuracy first arose until the day when such payment is made.

16.8 Disputed amounts 16.8.1 If all or part of any amount which is due for payment in accordance with this Agreement is the subject of a genuine dispute between the Parties then the Party disputing that amount will give notice to the other Party of the amount in dispute and the reasons for the dispute and on or before the due date for payment will make payment of any undisputed

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part of the amount which is due for payment (if any) to the Party to whom payment is due and will pay the disputed part of the amount which is due for payment into the Third Party Account. 16.8.2 Any amount which is due for payment in accordance with this Agreement may only validly be disputed if the Party disputing the amount has given notice to the other Party within [insert number] days of receipt by the Party disputing the amount of any invoice in respect thereof. 16.8.3 For a period of [insert number] days from the date of receipt by a Party of the notice of any disputed amount in accordance with Article 16.8.1 the Parties will meet and in good faith discuss and attempt to agree in writing upon a settlement of the disputed amount. If the disputed amount is not resolved within such period of [insert number] days then the disputed amount may thereafter be referred by either Party to an Expert for determination in accordance with Article 30. 16.8.4 After the determination of a disputed amount by an Expert in accordance with Article 16.8.3 or after any earlier agreement in writing between the Parties any amount so determined or so agreed to be due for payment by a Party will be released from the Third Party Account to the Party to which payment is due together with any interest earned on the disputed amount in the Third Party Account during the period in which the disputed amount was held in the Third Party Account. 16.8.5 Following the release of any amount in accordance with Article 16.8.4 any outstanding balance in the Third Party Account will be returned to the Party originally making payment of such amount into the Third Party Account together with any interest earned on that balance in the Third Party Account during the period in which that amount was held in the Third Party Account.

17. Shipper’s Guarantee 17.1 The Shipper warrants and represents to the Transporter that as at the Execution Date a credit rating of [insert rating] has been issued in respect of the Shipper by the Rating Agency (the Credit Rating).

17.2 If at any time during the Basic Term the Credit Rating is revised by the Rating Agency to a credit rating of or below [insert rating] then the Shipper will promptly give notice of such revision to the Credit Rating to the Transporter.

17.3 Whether or not the Shipper gives notice to the Transporter in accordance with Article 17.2, at any time during the Basic Term and at the Transporter’s option the Shipper will within [insert number] days of a request by the Transporter provide one of the following:

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(i)a guarantee from an Acceptable Guarantor and in a form acceptable to the Transporter (acting reasonably) whereby the Acceptable Guarantor irrevocably and unconditionally guarantees in favour of the Transporter the performance of all of the Shipper’s covenants or obligations in accordance with this Agreement; (ii)an irrevocable standby letter of credit in favour of the Transporter for a maximum amount of US$ [insert amount] issued by an Acceptable Bank in a form acceptable to the Transporter (acting reasonably), (where such guarantee or letter of credit will be the Shipper’s Guarantee).

17.4 If the Shipper fails to provide the Shipper’s Guarantee when required in accordance with Article 17.3 then the Transporter may, on giving the Shipper not less than [insert number] days’ notice of its intention so to do, suspend the transportation of Gas to the Shipper until the Shipper’s Guarantee is provided by the Shipper and/or terminate this Agreement.

18. Pipeline System Rules 18.1 The Transporter’s obligations The Transporter will execute and issue the Pipeline System Rules (which will reflect the principles set out in Schedule 6) by no later than [insert date] [provided that the Transporter will not execute and issue the Pipeline System Rules without first obtaining the Shipper’s written consent to the terms thereof (which consent will not be unreasonably withheld)].

18.2 The Shipper’s obligations Subject to the Transporter first fulfilling its obligations in accordance with Article 18.1, the Shipper will execute a deed of adherence to provide for the Shipper’s accession to the Pipeline System Rules within [insert number] days of the Transporter’s execution and issue of the Pipeline System Rules.

18.3 Pipeline System Rules to prevail 18.3.1 Upon the execution of the deed of adherence by the Shipper in accordance with Article 18.2 the following terms of this Agreement will cease to apply and will have no further effect: Article 19, Article 22, Schedule 2, Schedule 4 and Schedule 6. 18.3.2 To the extent of any inconsistency between this Agreement and the Pipeline System Rules, the Pipeline System Rules will prevail.

18.4 Failure to conclude the Pipeline System Rules If the Transporter fails to execute and issue the Pipeline System Rules as required in accordance with this Article 18:

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18.4.1 this Agreement will continue to apply between the Parties in respect of the provision of the Transportation Services by the Transporter to the Shipper; 18.4.2 (except where the Transporter’s failure is due to an act or omission of the Shipper) the Transporter will indemnify the Shipper against any loss or damage that the Shipper may incur or suffer as a consequence of such failure.

19. Nominations 19.1 Nominated Quantity 19.1.1 A Nominated Quantity means in respect of a Nomination Period the quantity of Gas which has been nominated or deemed nominated by the Shipper in accordance with this Article 19 for delivery by the Transporter at the Delivery Point (which term will include any Nominated Quantity which has been validly varied in accordance with Article 19.3). 19.1.2 The Nominated Quantity in respect of each nomination Period will not vary by more than [insert number] % of the Nominated Quantity for the preceding Nomination Period.

19.2 Daily Notices 19.2.1 The Shipper will by [insert time] on each day give notice to the Transporter of the Nominated Quantity required in respect of each Nomination Period for the next Gas Day (a Daily Notice). 19.2.2 The aggregate of the Nominated Quantities which are specified by the Shipper in a Daily Notice may be zero but will not be less than [insert number] mscf and will not be greater than the Reserved Capacity for that Gas Day. 19.2.3 Where a Maintenance Notification has been given by a Party in respect of a Gas Day then the aggregate of the Nominated Quantities which are specified by the Shipper in a Daily Notice in respect of that Gas Day will not exceed the Maintenance Reduction applicable to such Maintenance Notification. 19.2.4 If a Daily Notice is not given by the Shipper in accordance with Article 19.2.1 then the Shipper will be deemed to have given a Daily Notice in accordance with Article 19.2.1 in which each Nominated Quantity for the next Gas Day will

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equal each Nominated Quantity specified in the Daily Notice given in accordance with Article 19.2.1 (or deemed to have been given in accordance with this Article 19.2.4) in respect of the Gas Day preceding the Gas Day to which the original Daily Notice would have applied.

19.3 Variation Notices 19.3.1 The Shipper may at any time give notice to the Transporter of its requirement to vary a Nominated Quantity (a Variation Notice), provided that to be valid a Variation Notice will satisfy the conditions set out in Article 19.3.2. 19.3.2 In order to validly vary any Nominated Quantity the following conditions will apply: (i)if the Shipper requires a change of [insert number] % or less to a Nominated Quantity then the Variation Notice therefor will give the Transporter a minimum of [insert number] hours’ notice of such change; (ii)if the Shipper requires a change of more than [insert number] % to a Nominated Quantity then the Variation Notice therefor will give the Transporter a minimum of [insert number] hours’ notice of such change. 19.3.3 In respect of a period of notice required in accordance with Article 19.3.2 such period of notice will begin to run from the start of the hour following the hour in which the Variation Notice is given to the Transporter and any variation of a Nominated Quantity will not become effective until the expiry of the relevant period of notice.

19.4 Good faith nominations If the Transporter has given a Gas Deficiency Notice to the Shipper then the Shipper will not until such time as the Transporter has given a Gas Deficiency Remediation Notice to the Shipper give a Daily Notice nor a Variation Notice for a quantity of Gas greater than the quantity of Gas represented by the Nominated Quantity in force at the time when the Transporter gave such Gas Deficiency Notice to the Shipper.

19.5 Daily, Weekly and Monthly Estimates 19.5.1 At the same time as the Shipper gives a Daily Notice in accordance with Article 19.2 the Shipper will give to the Transporter the Shipper’s good faith best estimate of the required quantities of Gas to be delivered to the Shipper by the Transporter at the Delivery Point for the Gas Day following the Gas Day specified in the Daily Notice (the Daily Estimate). 19.5.2 By no later than [insert time] on the [insert day] day of each Week the Shipper will give to the Transporter the Shipper’s good faith best estimate of the required quantities of Gas to be delivered to the Shipper by the Transporter at the Delivery Point for each of the [insert number] Gas Days following the Gas Day to which the Daily Notice relates (the Weekly Estimate).

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19.5.3 By no later than [insert time] on the [insert day] day of each Contract Month the Shipper will give to the Transporter the Shipper’s good faith best estimate of the required quantities of Gas to be delivered to the Shipper by the Transporter at the Delivery Point during the next Contract Month (the Monthly Estimate).

19.6 Format and service of notices Each Daily Notice, Variation Notice, Daily Estimate, Weekly Estimate and Monthly Estimate: 19.6.1 will be prepared in such format as the Transporter may reasonably require and will from time to time notify to the Shipper; 19.6.2 will be given by the Shipper to the Transporter by e-mail in accordance with Article 32.

20. Lost Gas 20.1 Transporter’s liability for Lost Gas Lost Gas (subject to Article 20.2) means: 20.1.1 any quantity of Gas (other than Commissioning Gas, Fuel Gas or Initial Linefill Gas) which the Transporter has failed to take delivery of from the Shipper at the Input Point or which the Transporter has taken delivery of from the Shipper at the Input Point but which the Transporter has failed to deliver to the Shipper at the Delivery Point in accordance with this Agreement; 20.1.2 any quantity of Gas which is deemed to be Lost Gas in accordance with this Agreement.

20.2 Lost Gas Definition The definition of Lost Gas will not include any quantity of Gas: 20.2.1 which the Shipper has not taken delivery of at the Delivery Point when made available by the Transporter (subject to Article 21.6); 20.2.2

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not taken delivery of by the Transporter from the Shipper at the Input Point or not delivered by the Transporter to the Shipper at the Delivery Point: (i)which the Transporter is entitled to claim relief for in accordance with Article 24; (ii)as a result of any act or omission of the Shipper; (iii)in respect of any Maintenance Day to the extent of the Maintenance Reduction applicable to such Maintenance Day; (iv)where the Transporter is exercising its rights and interests in accordance with Article 24.7.2; (v)after the Transporter has given a Gas Deficiency Notice to the Shipper (but solely in respect of the quantity of Gas represented by a Nominated Quantity which is greater than the quantity of Gas represented by the Nominated Quantity in force at the time when the Transporter gave the Gas Deficiency Notice to the Shipper); (vi)where the Transporter is exercising its rights and interests in accordance with Article 16.6.2.

20.3 Lost Gas Price 20.3.1 The Transporter will pay the Lost Gas Price to the Shipper in respect any quantity of Lost Gas. 20.3.2 Payment by the Transporter to the Shipper of the Lost Gas Price will be made in accordance with Article 16. 20.3.3 The Parties agree that the Lost Gas Price is a liquidated damage for which the Transporter will be liable regardless of the level of the Shipper’s loss or liability which results from a Lost Gas event.

21. Quality and Off-Specification Gas 21.1 Specification and Gas pressure 21.1.1 The Shipper will ensure that (except as otherwise permitted in accordance with this Agreement) all quantities of Gas delivered or to be delivered by the Shipper at the Input Point for transportation through the Pipeline by the Transporter will at the Input Point conform to the Input Point Specification. 21.1.2 The Transporter will ensure that (except as otherwise permitted in accordance with this Agreement) all quantities of Gas delivered or to be delivered by the Transporter to the Shipper at the Delivery Point will at the Delivery Point conform to the Delivery Point Specification.

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21.1.3 The Shipper will ensure that throughout the Basic Term the Input Point Pressure will be in a range of [insert number] to [insert number] Pascals. 21.1.4 The Transporter will ensure that throughout the Basic Term the Delivery Point Pressure will be in a range of [insert number] to [insert number] Pascals.

21.2 Commingling of Gas in the Pipeline The Shipper acknowledges that Gas delivered at the Input Point for transportation through the Pipeline by the Transporter in accordance with this Agreement may be commingled in the Pipeline with Gas from any Other Shipper, and that Gas delivered by the Transporter to the Shipper at the Delivery Point in accordance with this Agreement may not necessarily be the same molecular quantity of Gas which was delivered by the Shipper to the Transporter at the Input Point.

21.3 Notice of Input Point Off-Specification Gas 21.3.1 If any quantity of Gas to be delivered by the Shipper to the Transporter at the Input Point in accordance with this Agreement fails or is anticipated by the Shipper to fail to conform to the Input Point Specification (Input Point OffSpecification Gas) the Shipper will promptly give notice to the Transporter detailing the failure or anticipated failure of such Gas to meet the Input Point Specification, the reasons for such failure (if then known) and the Shipper’s good faith best estimate of the likely duration of such failure. 21.3.2 The Transporter will give notice to the Shipper promptly if the Transporter becomes aware prior to receiving the Shipper’s notice in accordance with Article 21.3.1 that Input Point Off-Specification Gas has been or may be delivered by the Shipper to the Transporter at the Input Point in accordance with this Agreement. 21.3.3 The Shipper will perform such remedial works as would be performed by a Reasonable and Prudent Person to ensure that any quantity of Gas which is or which may be Input Point Off-Specification Gas will at the Input Point will conform to the Input Point Specification. 21.3.4 The Shipper will have no liability and the Transporter will have no remedy in accordance with this Agreement in respect of any quantity of Input Point Off-Specification Gas which is caused by any act or omission of the Transporter.

21.4 Notice of Delivery Point Off-Specification Gas 21.4.1 If any quantity of Gas to be delivered by the Transporter to the Shipper at the Delivery Point in accordance with this Agreement fails or is anticipated by the Transporter to fail to conform to the Delivery Point Specification (Delivery © 2023 Thomson Reuters.

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Point Off-Specification Gas) the Transporter will promptly give notice to the Shipper detailing the failure or anticipated failure of the such Gas to meet the Delivery Point Specification, the reasons for such failure (if then known) and the Transporter’s good faith best estimate of the likely duration of such failure. 21.4.2 The Shipper will give notice to the Transporter promptly if the Shipper becomes aware prior to receiving the Transporter’s notice in accordance with Article 21.4.1 that Delivery Point Off-Specification Gas has been or may be delivered by the Transporter to the Shipper at the Delivery Point in accordance with this Agreement. 21.4.3 The Transporter will perform such remedial works as would be performed by a Reasonable and Prudent Person to ensure that any quantity of Gas which is or which may be Delivery Point Off-Specification Gas will at the Delivery Point will conform to the Delivery Point Specification. 21.4.4 The Transporter will have no liability and the Shipper will have no remedy in accordance with this Agreement in respect of any quantity of Delivery Point Off-Specification Gas which is caused by any act or omission of the Shipper.

21.5 Refusal to take delivery of Input Point Off-Specification Gas 21.5.1 The Transporter will use reasonable endeavours to take delivery of but may (subject to compliance with that obligation) refuse to take delivery of any quantity of Input Point Off-Specification Gas delivered or to be delivered by the Shipper, provided that the Transporter will promptly give notice to the Shipper of whether the Transporter will take delivery of or will refuse to take delivery of such Input Point Off-Specification Gas at the Input Point and of the reasons for any refusal. 21.5.2 The taking of delivery by the Transporter of any quantity of Input Point Off-Specification Gas delivered by the Shipper to the Transporter at the Input Point will not prejudice the Transporter’s rights and interests in accordance with this Article 21 to refuse to take delivery of any subsequent quantity of Input Point Off-Specification Gas delivered or to be delivered by the Shipper to the Transporter at the Input Point. 21.5.3 Any quantity of Input Point Off-Specification Gas delivered or to be delivered by the Shipper to the Transporter at the Input Point which the Transporter has refused to take delivery of will be deemed to be Lost Gas (subject to Article 20.2).

21.6 Refusal to take delivery of Delivery Point Off-Specification Gas 21.6.1 The Shipper will use reasonable endeavours to take delivery of but may (subject to compliance with that obligation) refuse to take delivery of any quantity of Delivery Point Off-Specification Gas delivered or to be delivered by the Transporter, provided that the Shipper will promptly give notice to the Transporter of whether the Shipper will take delivery of or will refuse to take delivery of such Delivery Point Off-Specification Gas at the Delivery Point and of the reasons for any refusal.

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21.6.2 The taking of delivery by the Shipper of any quantity of Delivery Point Off-Specification Gas delivered by the Transporter to the Shipper at the Delivery Point will not prejudice the Shipper’s rights and interests in accordance with this Article 21 to refuse to take delivery of any subsequent quantity of Delivery Point Off-Specification Gas delivered or to be delivered by the Transporter to the Shipper at the Delivery Point. 21.6.3 Any quantity of Delivery Point Off-Specification Gas delivered or to be delivered by the Transporter to the Shipper at the Delivery Point which the Shipper has refused to take delivery of will be deemed to be Lost Gas (subject to Article 20.2).

21.7 Knowingly taking delivery of Input Point Off-Specification Gas If the Transporter takes delivery of any quantity of Input Point Off-Specification Gas at the Input Point and the Transporter was aware of the nature of such Input Point Off-Specification Gas prior to so taking delivery then (provided there is no material deviation from the nature of the original off-specification event prior to or during such taking of delivery) such Input Point Off-Specification Gas will be deemed to be Gas which conforms to the Input Point Specification and the Shipper will have no liability and the Transporter will have no remedy in accordance with this Agreement in respect of such Input Point Off-Specification Gas.

21.8 Knowingly taking delivery of Delivery Point Off-Specification Gas If the Shipper takes delivery of any quantity of Delivery Point Off-Specification Gas at the Delivery Point and the Shipper was aware of the nature of such Delivery Point Off-Specification Gas prior to so taking delivery then (provided there is no material deviation from the nature of the original off-specification event prior to or during such taking of delivery) such Delivery Point Off-Specification Gas will be deemed to be Gas which conforms to the Delivery Point Specification and the Transporter will have no liability and the Shipper will have no remedy in accordance with this Agreement in respect of such Delivery Point Off-Specification Gas.

21.9 Unknowingly taking delivery of Input Point Off-Specification Gas If the Transporter takes delivery of any quantity of Input Point Off-Specification Gas and the Transporter was not aware of the nature of such Input Point Off Specification Gas prior to so taking delivery then the Shipper will indemnify the Transporter against any loss or liability incurred by the Transporter in connection with any physical damage to the Transporter’s Facilities arising in consequence of such Input Point Off-Specification Gas.

21.10 Unknowingly taking delivery of Delivery Point Off-Specification Gas If the Shipper takes delivery of any quantity of Delivery Point Off-Specification Gas and the Shipper was not aware of the nature of such Delivery Point Off-Specification Gas prior to so taking delivery then: 21.10.1 where the Shipper was unable to utilise such quantity of Delivery Point Off-Specification Gas in the ordinary course of its business then such quantity of Delivery Point Off-Specification Gas will be deemed to be Lost Gas (subject to Article 20.2); 21.10.2

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the Transporter will indemnify the Shipper against any loss or liability incurred by the Shipper in connection with any physical damage to the Shipper’s Facilities directly arising in consequence of such Delivery Point Off-Specification Gas.

21.11 Delivery of Gas in a commingled stream Without prejudice to the other provisions of this Article 21, if Gas to be delivered in accordance with this Agreement forms part of a commingled stream at the Delivery Point then: 21.11.1 if the commingled stream does not conform to the Specification at the Delivery Point then Gas delivered in accordance with this Agreement will be deemed to be Delivery Point Off-Specification Gas for the purposes of this Agreement; 21.11.2 if the commingled stream does conform to the Specification at the Delivery Point then Gas delivered in accordance with this Agreement will be deemed not to be Delivery Point Off-Specification Gas for the purposes of this Agreement.

21.12 Expert determination Any dispute between the Parties concerning the application of this Article 21 will be referred to an Expert for determination in accordance with Article 30.

22. Measurement 22.1 The rights, interests, covenants and obligations of the Parties in respect of the measurement of Gas delivered by the Shipper to the Transporter at the Input Point in accordance with this Agreement will be as set out in Schedule 4.

22.2 The rights, interests, covenants and obligations of the Parties in respect of the measurement of Gas delivered by the Transporter to the Shipper at the Delivery Point in accordance with this Agreement will be as set out in Schedule 4.

23. Maintenance 23.1 Scheduled Maintenance rights 23.1.1

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To enable the Scheduled Maintenance of the Transporter’s Facilities and the Shipper’s Facilities each Party will have the right in each Contract Year to give notice of a reduction to the Reserved Capacity (the Maintenance Reduction) in respect of certain Maintenance Days during the next Contract Year in accordance with this Article 23. 23.1.2 Each Party will give notice to the other Party of its requirements for Scheduled Maintenance for the next Contract Year (the Maintenance Notification) by no later than the last day of [insert date] in the Contract Year preceding the Contract Year in which the Scheduled Maintenance is required to be performed (except in the case of the first Contract Year, when the Maintenance Notification will be given by each Party by no later than [insert number] days after the Start Date). 23.1.3 Each Maintenance Notification will specify: (i)the dates for the Maintenance Days in the next Contract Year during which a Maintenance Reduction will apply; (ii)(subject to Article 23.1.5) the prevailing Reserved Capacity and the required Maintenance Reduction for each Maintenance Day (provided that in respect of any Maintenance Day the Maintenance Reduction may only be a reduction of the Reserved Capacity to zero or to [insert number] mscf/Gas Day); (iii)the nature of the Scheduled Maintenance which is to be performed on each Maintenance Day. 23.1.4 If a Party fails to give a Maintenance Notification in accordance with Article 23.1.2 and/or Article 23.1.3 then such Party will be deemed to have given a Maintenance Notification which specifies a requirement for no Scheduled Maintenance in respect of the next Contract Year. 23.1.5 The maximum amount by which the Transporter may reduce the Reserved Capacity and by which the Shipper may reduce the Reserved Capacity for the purpose of performing Scheduled Maintenance in a Contract Year will for each of the Transporter and the Shipper not exceed the ARC applicable to that Contract Year multiplied by [insert number] % (the Annual Maintenance Allowance). 23.1.6 The Parties will use reasonable endeavours to ensure that in respect of each Contract Year their respective Maintenance Days will coincide.

23.2 Consequences of Scheduled Maintenance 23.2.1 In respect of each Maintenance Day the Transporter will only be obliged to deliver an aggregate quantity of Gas to the Shipper at the Delivery Point and the Shipper will only be permitted to nominate an aggregate quantity of Gas for delivery by the Transporter at the Delivery Point up to the Reserved Capacity as reduced by the Maintenance Reduction specified in the Maintenance Notification applicable to such Maintenance Day. 23.2.2 Where the Transporter and the Shipper have each scheduled to perform Scheduled Maintenance on the same Maintenance Day and have each given a Maintenance Reduction in respect thereof then the Maintenance Reduction

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which will apply in respect of such Maintenance Day will be the greater of the Maintenance Reductions given by the Transporter or the Shipper in their respective Maintenance Notifications (and if the Shipper and the Transporter have given the same Maintenance Reduction then the Transporter’s Maintenance Reduction will apply). 23.2.3 The ARC for a Contract Year in which any Maintenance Reduction is effected will be adjusted in accordance with Article 11.3.1(iv).

23.3 Rescheduling At any time during a Contract Year after a Maintenance Notification has been given, or during a Contract Year in which Scheduled Maintenance is to be performed, a Party may reschedule any of its Maintenance Days and/or the Maintenance Reduction applicable to any Maintenance Day subject to the consent of the other Party (such consent not to be unreasonably withheld).

24. Force Majeure 24.1 Definition of a Force Majeure Event A Force Majeure Event is (subject to Article 24.2) any event or circumstance which prevents, impedes or delays the performance by the Affected Party of any covenant or obligation in accordance with this Agreement and which is otherwise validly claimed and maintained by the Affected Party in accordance with this Article 24, including the following events or circumstances: 24.1.1 atmospheric disturbance, drought, earthquake, epidemic, explosion, fire, flood, fog, haze, hurricane, landslide, lightning, soil erosion, storm, subsidence, tempest, tornado, typhoon, washout or other acts of god; 24.1.2 acts or serious threats of war (whether declared or undeclared), riot, civil war, blockade, insurrection, acts of public enemies, invasion, revolution, sabotage or terrorism; 24.1.3 strikes, lock-outs or industrial disturbances; 24.1.4 chemical or radioactive contamination or ionising radiation; 24.1.5 pollution, shipwrecks, perils of the sea or perils to navigation; 24.1.6

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damage to, loss of or inoperability of the Transporter’s Facilities or damage to, loss of or inoperability of the Shipper’s Facilities; 24.1.7 acts or omissions of a Governmental Authority or the modification or removal of an Authorisation; 24.1.8 the imposition of sanctions.

24.2 Force Majeure Event exclusions The following events or circumstances will not constitute a Force Majeure Event: 24.2.1 any event or circumstance which makes the performance of this Agreement uneconomic or commercially impracticable or any changes in market conditions or any deterioration in the ability to make a profit or to receive a satisfactory rate of return from the production, transportation, sale or consumption of Gas, including in the case of the Shipper any lack of demand for Gas from or other adverse events or circumstances affecting the Buyer or any other persons to whom the Shipper (as a seller) sells or supplies Gas (but without prejudice to a Party’s rights in accordance with Article 15); 24.2.2 in the case of the Transporter, any event or circumstance performed by or attributable to a Governmental Authority which is primarily directed at the Transporter or this Agreement; 24.2.3 in the case of the Shipper, any event or circumstance performed by or attributable to a Governmental Authority which is primarily directed at the Shipper or this Agreement; 24.2.4 (subject to Article 24.3) in the case of the Transporter, any event or circumstance arising in connection with any equipment or facilities other than the Transporter’s Facilities; 24.2.5 (subject to Article 24.3) in the case of the Shipper, any event or circumstance arising in connection with any equipment or facilities other than the Shipper’s Facilities; 24.2.6 the breakdown or failure of any equipment (including the Transporter’s Facilities or the Shipper’s Facilities) caused by normal wear and tear or caused by the failure of the Affected Party to maintain such equipment or to maintain a suitable stock of spares to the Standard of a Reasonable and Prudent Person; 24.2.7 (subject to Article 24.3) any event or circumstance affecting any Third Party;

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24.2.8 the failure of Gas to comply with the Delivery Point Specification as a result of the commingling of Gas by the Transporter upstream of the Delivery Point; 24.2.9 any event or circumstance which comprises or results from any Wilful Misconduct of the Affected Party or any act or omission by the Affected Party which could have been prevented or overcome by the exercise by the Affected Party of the Standard of a Reasonable and Prudent Person; 24.2.10 the imposition of a sanction in respect of an Affected Party by a Governmental Authority due solely to the failure of the Affected Party to comply with any applicable law, regulation or Authorisation; 24.2.11 the inability or the failure of the Affected Party to make payment of any money when due in accordance with this Agreement or the inability or the failure of the Affected Party to raise any financing required in connection with the performance of the Affected Party’s covenants or obligations in accordance with this Agreement; 24.2.12 any matter in respect of which the Affected Party is pursuing a claim for relief in accordance with Article 15.

24.3 Third Parties 24.3.1 For the purposes of this Article 24 any Force Majeure Event which occurs in respect of the Transporter will, subject to this Article 24, be deemed to include any event or circumstance which affects any person responsible for any part of the design, construction, installation, commissioning, maintenance, repair or operation of the Transporter’s Facilities or any contractor, servant or agent of the Transporter or of any the foregoing persons. 24.3.2 For the purposes of this Article 24 any Force Majeure Event which occurs in respect of the Shipper will, subject to this Article 24, be deemed to include any event or circumstance which affects any person responsible for any part of the design, construction, installation, commissioning, maintenance, repair or operation of the Shipper’s Facilities or any contractor, servant or agent of the Shipper or of any of the foregoing persons. 24.3.3 Any event or circumstance which affects any of the persons specified in Article 24.3.1 (in respect of the Transporter) or in Article 24.3.2 (in respect of the Shipper) which prevents, impedes or delays the Transporter’s or the Shipper’s performance of any covenant or obligation in accordance with this Agreement will constitute a Force Majeure Event in respect of the Transporter or the Shipper as appropriate if and to the extent that it is of a kind or character that, if it had happened to that Party, would have come within the definition of a Force Majeure Event in accordance with this Article 24.

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24.4 Relief for a Force Majeure Event 24.4.1 Subject to this Article 24 an Affected Party will not be liable to the other Party for a failure to perform a covenant or obligation in accordance with this Agreement to the extent that the Affected Party’s performance of such covenant or obligation is prevented, impeded or delayed by a Force Majeure Event. 24.4.2 An Affected Party will not be entitled to relief in accordance with this Article 24, or having become entitled will cease to be so entitled, and a Force Majeure Event will cease to be treated as a Force Majeure Event to the extent that the Affected Party fails to comply with the requirements of this Article 24 unless such failure would itself qualify as a Force Majeure Event. 24.4.3 Each Party will to the greatest extent possible continue to perform its covenants or obligations in accordance with this Agreement to the extent not prevented, impeded or delayed by a Force Majeure Event. 24.4.4 If a Force Majeure Event occurs the Affected Party will (acting in accordance with the Standard of a Reasonable and Prudent Person) act to bring the Force Majeure Event to an end and to resume full and proper performance of the covenant or obligation to which the Force Majeure Event relates. 24.4.5 Where a Force Majeure Event affects any of the persons specified in Article 24.3.1 or Article 24.3.2 then the Transporter (in respect of any of the persons specified in Article 24.3.1) or the Shipper (in respect of any of the persons specified in Article 24.3.2) will procure that the said persons affected by that Force Majeure Event will (acting in accordance with the Standard of a Reasonable and Prudent Person) act to bring the Force Majeure Event to an end. 24.4.6 When the Affected Party gives notice that it anticipates that it will be able to resume the performance of the covenant or obligation to which the Force Majeure Event relates the Parties will cooperate to accomplish any recommissioning necessary to enable such resumption of performance. 24.4.7 The Affected Party will bear the burden of proving that an event or circumstance constitutes a Force Majeure Event and that otherwise it has complied with the requirements of this Article 24.

24.5 Force Majeure Estimates An Affected Party will give notice (a Force Majeure Estimate) to the other Party at each of the following times: 24.5.1

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promptly after the day (the Relevant Day) upon which the Affected Party first knew or ought reasonably to have known of the inability to perform a covenant or obligation in accordance with this Agreement for which relief is sought in accordance with this Article 24; 24.5.2 within [insert number] days from the Relevant Day and on the last day of each subsequent period of [insert number] days thereafter; 24.5.3 promptly after the Affected Party’s good faith best estimate of the duration of the Force Majeure Event given in accordance with Article 24.6.1(ii) changes; 24.5.4 promptly after the Affected Party anticipates that it will be able to resume performance of the covenant or obligation for which relief is sought in accordance with this Article 24.

24.6 Content of Force Majeure Estimates 24.6.1 Each Force Majeure Estimate will contain the Affected Party’s good faith best estimates of the following information: (i)full particulars of and the reasons for the Force Majeure Event; (ii)the expected extent of the Affected Party’s inability to perform any covenant or obligation in accordance with this Agreement; (iii)the expected duration of the Force Majeure Event from the Relevant Day and the expected date that performance of the covenant or obligation to which the Force Majeure Event relates will be resumed (whether incrementally or in whole); (iv)the actions which the Affected Party (acting in accordance with the Standard of a Reasonable and Prudent Person) proposes to take to bring the Force Majeure Event to an end and to resume full and proper performance of the covenant or obligation to which the Force Majeure Event relates and the Affected Party’s good faith best estimate of the expected schedule thereof; (v)the quantities of Gas that it will (in the case of the Transporter) be unable to deliver or that it will (in the case of the Shipper) be unable to take delivery of at the Delivery Point. 24.6.2 Each subsequent Force Majeure Estimate will contain any of the above information not previously given notice of, a full report confirming or updating and amplifying the information contained in any previous Force Majeure Estimates and such further information as the other Party may reasonably require.

24.7 Third Party transportation of Gas 24.7.1

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If the Transporter is unable because of a Force Majeure Event to provide the Transportation Services to the Shipper when required in accordance with this Agreement then the Shipper may enter into an agreement for the transportation of Gas by a Third Party for the anticipated duration of the said Force Majeure Event and to the extent of the Transporter’s anticipated inability to provide the Transportation Services (such agreement not to exceed the Transporter’s good faith best estimate of the extent of the Force Majeure Event given in accordance with Article 24.6.1) and to the extent that the Shipper enters into any such agreement: (i)the Shipper may honour such agreement notwithstanding that the Force Majeure Event ends before the expiry of such agreement; (ii)the Transporter will give or procure such access to and use of the Transporter’s Facilities as may reasonably be necessary to facilitate such transportation of Gas by the Shipper. 24.7.2 If the Shipper is unable because of a Force Majeure Event to input Gas for transportation at the Input Point or to take delivery of Gas from the Transporter at the Delivery Point in accordance with this Agreement then the Transporter may enter into an agreement to Transport Gas on behalf of a Third Party for the anticipated duration of the said Force Majeure Event and to the extent of the Shipper’s inability to input or to take delivery of Gas (such agreement not to exceed the Shipper’s good faith best estimate of the extent of the duration of the Force Majeure Event given in accordance with Article 24.6.1) and to the extent that the Transporter enters into any such agreement: (i)the Transporter may honour such agreement notwithstanding that the Force Majeure Event ends before the expiry of such agreement; (ii)the Shipper will give or procure such access to and use of the Shipper’s Facilities as may reasonably be necessary to facilitate such sale and delivery of Gas by the Transporter.

24.8 Expert determination Any dispute between the Parties concerning the application of this Article 24 will be referred to an Expert for determination in accordance with Article 30.

25. Liabilities and Limitations 25.1 Exclusive remedies 25.1.1 The remedies set out in this Agreement in respect of a breach by a Party of this Agreement will be the exclusive remedies of the Parties in respect of such a breach and will be exhaustive of any other remedies howsoever arising (whether at law, in equity or under any statutory duty, strict or tortious liability or otherwise). 25.1.2 The provisions of Article 25.1.1 will (subject to Article 36.2) be without prejudice to the rights of a Party to seek injunctive or declaratory relief in respect of that Party’s rights and interests and/or the covenants or obligations of the other Party in accordance with this Agreement.

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25.2 Consequential Loss liability A Party will not be liable to the other Party for any Consequential Loss suffered by that other Party resulting from a breach of this Agreement by the first Party.

25.3 Liability for Wilful Misconduct 25.3.1 Nothing in this Agreement will limit, exclude or prevent any liability of a Party in respect of any loss or liability caused by that Party’s Wilful Misconduct. 25.3.2 The liability of a Party to indemnify the other Party in accordance with this Agreement will not apply where the liability to so indemnify has arisen in consequence of the Wilful Misconduct of the Party to be indemnified.

25.4 Liability for property and personnel loss or damage 25.4.1 The Shipper will be responsible for and will indemnify the Transporter against any loss or liability which the Transporter may have in respect of: (i)any loss of or damage to the Shipper’s Facilities arising out of or in connection with this Agreement; (ii)any claim, demand, action or proceedings brought or instituted against the Transporter or any of the Transporter’s Associated Persons by the Shipper or any of the Shipper’s Associated Persons for personal injuries, illness, death or damage to property arising out of or in connection with this Agreement and even where caused by the negligence or breach of duty of the Transporter. 25.4.2 The Transporter will be responsible for and will indemnify the Shipper against any loss or liability which the Shipper may have in respect of: (i)any loss of or damage to the Transporter’s Facilities arising out of or in connection with this Agreement; (ii)any claim, demand, action, or proceedings brought or instituted against the Shipper or any of the Shipper’s Associated Persons by the Transporter or any of the Transporter’s Associated Persons for personal injuries, illness, death or damage to property arising out of or in connection with this Agreement, and even where caused by the negligence or breach of duty of the Shipper.

25.5 Liability for Third Party claims 25.5.1 The Shipper will be responsible for and will indemnify the Transporter against any loss or liability which the Transporter may have in respect of any claim, demand, action or proceedings brought or instituted against the Transporter or any of the Transporter’s Associated Persons by any Third Party arising out of or in respect of the exercise by the Shipper

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of its rights or interests and/or the performance by the Shipper of its covenants or obligations in accordance with this Agreement. 25.5.2 The Transporter will be responsible for and will indemnify the Shipper against any loss or liability which the Shipper may have in respect of any claim, demand, action or proceedings brought or instituted against the Shipper or any of the Shipper’s Associated Persons by any Third Party arising out of or in respect of the exercise by the Transporter of its rights or interests and/or the performance by the Transporter of its covenants or obligations in accordance with this Agreement.

25.6 Conduct of claims 25.6.1 A Party which has a right to be indemnified by the other Party in accordance with this Agreement (the Indemnified Party) will promptly notify the Party obliged to make such indemnification (the Indemnifying Party) of the assertion or commencement of any claim, demand, action or proceedings in respect of which the Indemnified Party may be indemnified by the Indemnifying Party (an Indemnifiable Action). 25.6.2 The Indemnified Party will at the request of the Indemnifying Party: (i)(at the expense of the Indemnified Party) assume responsibility for the defence or settlement of any Indemnifiable Action with legal counsel reasonably satisfactory to the Indemnifying Party (provided that the Indemnifying Party will at its own expense have the right to participate fully in the defence or settlement of such Indemnifiable Action); (ii)allow the Indemnifying Party (at its own expense) to assume responsibility for the defence or settlement of any Indemnifiable Action, with such defence or settlement to be at the sole risk and expense of the Indemnifying Party. 25.6.3 Neither Party will settle any Indemnifiable Action without the prior written consent of the other Party (such consent not to be unreasonably withheld).

25.7 Mitigation of losses An Indemnified Party will use reasonable endeavours to mitigate the losses for which the Indemnified Party has a right to be indemnified by the Indemnifying Party in accordance with this Agreement (including the Indemnified Party making recoveries in accordance with any appropriate policies of insurance which the Indemnified Party may have in force from time to time).

25.8 Waiver of sovereign immunity A Party which is entitled to plead any form of sovereign immunity: 25.8.1 consents generally in accordance with the State Immunity Act 1978 to the issue of any proceedings or to relief being given against it by way of injunction or order for specific performance or for the recovery of any property whatsoever and to its property being subject to any process for the enforcement of any order or judgment or any process effected in the course of or as a result of any action in rem; © 2023 Thomson Reuters.

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25.8.2 irrevocably waives and will not claim any immunity from suits and proceedings and from all forms of execution or attachment (including attachment prior to judgment and attachment in aid of execution) to which it or its property is now or may hereafter become entitled in accordance with the laws of any jurisdiction and declares that such waiver will be effective to the fullest extent permitted by such laws.

26. Transfers 26.1 Prohibited transfers A Party will not transfer, cede, assign or otherwise divest any of its rights, interests, covenants or obligations (in whole or in part) under or in respect of this Agreement except as permitted in accordance with this Article 26.

26.2 Limitations on transfers Without prejudice to Article 26.3 or Article 26.4 a Party (the Transferor) may transfer all of its rights, interests, covenants or obligations under or in respect of this Agreement to a Third Party (the Transferee) subject to the prior written consent of the non-transferring Party (such consent not to be unreasonably withheld) and provided also that no such transfer will be effective unless and until the Transferor: 26.2.1 has procured the Transferee to covenant directly with the non-transferring Party to observe and perform this Agreement; 26.2.2 has given to the non-transferring Party a certified copy of the document effecting such transfer (excluding any commercially sensitive terms relating to such transfer); 26.2.3 (in the case of a transfer by the Shipper and where the Shipper’s Guarantee has been provided in accordance with Article 17) has procured an undertaking from the Shipper’s Guarantor that the Shipper’s Guarantee will be extended in favour of the Transporter to cover the performance of the Transferee or has procured a replacement guarantee in a form and from a person reasonably satisfactory to the Transporter in respect of the performance of the Transferee; 26.2.4 has procured all necessary regulatory consents and approvals which may be required in connection with such transfer; 26.2.5 (in the case of a transfer by the Transporter) has transferred to the Transferee all of the Transporter’s interests in the Transporter’s Concession; 26.2.6

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(in the case of a transfer by the Shipper) has transferred to the Transferee all of the Shipper’s interests in the Shipper’s Documents (where Articles 26.2.1 to 26.2.6 inclusive are the Transfer Conditions).

26.3 Transfers to Affiliates A Party (the Transferor) may transfer all of its rights, interests, covenants or obligations under or in respect of this Agreement to an Affiliate of the Transferor (the Affiliate Transferee) without the consent of the non-transferring Party provided that: 26.3.1 the Transfer Conditions will apply in respect of the Affiliate Transferee as if it were the Transferee as named therein; 26.3.2 the Transferor will remain fully liable (jointly and severally with the Affiliate Transferee) to the non-transferring Party in respect of the rights, interests, covenants or obligations so transferred to the Affiliate Transferee; 26.3.3 if after the conclusion of a transfer to an Affiliate Transferee in accordance with this Article 26.3 that Affiliate Transferee continues to hold the rights, interests, covenants or obligations so transferred and ceases to satisfy the definition of an Affiliate in accordance with Article 1.1 then the Transferor will procure that the Affiliate Transferee will promptly transfer such rights, interests, covenants or obligations back to the Transferor.

26.4 Financing transfers 26.4.1 A Party (the Transferor) may transfer by way of security or create a security interest over this Agreement to or in favour of banks, financial institutions, credit agencies or other lenders (the Lenders) as security for any financing or refinancing of the Transferor’s rights, interests, covenants or obligations under or in respect of this Agreement provided that: (i)Article 26.2.1 will apply in respect of the Lenders as if they were the Transferee as named therein; (ii)the Lenders will covenant directly with the non-transferring Party that upon the exercise of any security rights or interests in accordance with their lending arrangements with the Transferor the Lenders or any nominee of the Lenders will accept and comply with all of the covenants or obligations of the Transferor under or in respect of this Agreement and will not transfer any rights, interests, covenants or obligations under or in respect of this Agreement to any person other than in accordance with this Article 26. 26.4.2 The non-transferring Party will upon request by the Transferor negotiate and enter into a written agreement with the Lenders on reasonable terms which provides for: (i)the transfer of the Transferor’s rights, interests, covenants or obligations in interests under or in respect of this Agreement to a nominee of the Lenders following any default by the Transferor in accordance with the lending arrangements with the Lenders;

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(ii)a requirement that where the non-transferring Party intends to terminate this Agreement in accordance with this Agreement then the non-transferring Party will first give reasonable notice to the Lenders prior to the exercise of such right of termination.

26.5 Third Parties 26.5.1 A Party will have the right to perform any of its covenants or obligations under or in respect of this Agreement by procuring that such covenants or obligations are performed on that Party’s behalf by another person (including by any of the Transporter’s Representative or the Shipper’s Representative (as appropriate) or by any Affiliate, employee, agent or contractor of such Party). 26.5.2 Notwithstanding the rights and interests of a Party in accordance with Article 26.5.1 such Party will remain fully liable (jointly and severally with such other person) to the other Party in respect of the performance of such covenants or obligations. 26.5.3 The Parties do not intend that any term of this Agreement should be enforceable in accordance with the Contracts (Rights of Third Parties) Act 1999 by any person who is not a Party. Any of the Shipper’s Associated Persons, the Transporter’s Associated Persons or the Transporter will not be regarded as a third party for the purposes of interpretation of the Contracts (Rights of Third Parties) Act 1999 as it applies to this Agreement.

27. Termination 27.1 Events of termination This Agreement will terminate upon the first to occur of the following events: 27.1.1 the [insert number] anniversary of the Start Date; 27.1.2 the issue of a notice of termination in accordance with any of Articles 2.3.8, 4.9, 16.6.2, 17.4, 27.2, 27.3, 27.4 or 27.5 becoming effective; 27.1.3 termination of this Agreement by the operation of applicable law or by agreement in writing between the Parties; 27.1.4 termination of the Gas Sales Agreement (other than in consequence of any default of the Shipper as the seller therein).

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27.2 Termination for an Act of Insolvency 27.2.1 Either Party may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the other Party upon or after the occurrence of an Act of Insolvency in respect of that other Party. 27.2.2 This Agreement will terminate upon the expiry of the period of notice given in accordance with Article 27.2.1 unless the Party to which the notice of termination has been given has demonstrated to the reasonable satisfaction of the Party giving the notice of termination that the Act of Insolvency complained of does not apply and the Party giving the notice of termination has withdrawn that notice.

27.3 Termination for accumulated Lost Gas 27.3.1 If during the Basic Term the aggregate quantity of Lost Gas for a continuous period of [insert number] days is equal to or greater than [insert number] % of the aggregate of the Reserved Capacities applicable to such period of [insert number] days then the Shipper may terminate this Agreement by notice given to the Transporter in accordance with Article 27.3.2. 27.3.2 Where the conditions of Article 27.3.1 apply the Shipper may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the Transporter, which notice will be given within a period of [insert number] days after the expiration of the period of [insert number] days specified in Article 27.3.1. 27.3.3 This Agreement will terminate upon the expiry of the period of notice given in accordance with Article 27.3.2. 27.3.4 If the Shipper fails to give a notice of termination to the Transporter within the [insert number] day period specified in Article 27.3.2 then the Shipper’s right to terminate this Agreement in accordance with this Article 27.3 will cease to apply and will have no further effect in respect of the period of [insert number] days specified in Article 27.3.1 to which such right of termination would otherwise apply but this will be without prejudice to the Shipper’s right to exercise its right of termination in accordance with this Article 27.3 in respect of any subsequent circumstances to which this Article 27.3 would otherwise apply.

27.4 Termination for prolonged non-transportation of gas 27.4.1 If during the Basic Term the aggregate quantity of Gas which the Shipper has not delivered to the Transporter at the Input Point for any reason for a continuous period of [insert number] days is equal to or greater than [insert number] % of the aggregate of the Reserved Capacities applicable to such period of [insert number] days then the Transporter may terminate this Agreement by notice given to the Shipper in accordance with Article 27.4.2.

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27.4.2 Where the conditions of Article 27.4.1 apply the Transporter may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the Shipper, which notice will be given within a period of [insert number] days after the expiration of the period of [insert number] days specified in Article 27.4.1. 27.4.3 This Agreement will terminate upon expiry of the period of notice given in accordance with Article 27.4.2. 27.4.4 If the Transporter fails to give a notice of termination to the Shipper within the [insert number] day period specified in Article 27.4.2 then the Transporter’s right to terminate this Agreement in accordance with this Article 27.4 will cease to apply and will have no further effect in respect of the period of [insert number] days specified in Article 27.4.1 to which such right of termination would otherwise apply but this will be without prejudice to the Transporter’s right to exercise its right of termination in accordance with this Article 27.4 in respect of any subsequent circumstances to which this Article 27.4 would otherwise apply.

27.5 Termination for prolonged Force Majeure 27.5.1 If during the Basic Term a Party is relieved in accordance with Article 24 in respect of a Force Majeure Event then either Party may terminate this Agreement if: (i)such Force Majeure Event has subsisted for a continuous period of not less than [insert number] days and is continuing upon the date that a notice is given in accordance with Article 27.5.2 in respect of such Force Majeure Event; and (ii)such Force Majeure Event has resulted in the non-transportation to the Delivery Point by the Transporter or the non-taking of delivery by the Shipper at the Delivery Point of a quantity of Gas which over such period of [insert number] days is equal to or greater than [insert number] % of the aggregate of the Reserved Capacities applicable to such period of [insert number] days. 27.5.2 Where the conditions of Article 27.5.1 apply a Party may terminate this Agreement upon giving not less than [insert number] days’ notice of termination to the other Party, which notice will be given within the period of [insert number] days after the expiration of the period of [insert number] days specified in Article 27.5.1. 27.5.3 This Agreement will terminate upon the expiry of the period of notice given in accordance with Article 27.5.2. 27.5.4 If a Party fails to give a notice of termination to the other Party within the [insert number] day period specified in Article 27.5.2 then the right of either Party to terminate this Agreement in accordance with this Article 27.5 will cease to apply and will have no further effect in respect of the Force Majeure Event to which such right of termination would otherwise apply but this will be without prejudice to a Party’s right to exercise its right of termination in accordance with this Article 27.5 in respect of any subsequent Force Majeure Events to which this Article 27.5 would otherwise apply.

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27.6 Post termination consequences 27.6.1 Except where expressly provided to the contrary in this Agreement, any termination of this Agreement will relieve the Parties of their covenants, obligations or liabilities in accordance with this Agreement with effect from the Termination Date but will be without prejudice to any covenants, obligations or liabilities which arose or were incurred on or prior to the Termination Date. 27.6.2 The covenant or obligation of a Party to indemnify the other Party in accordance with this Agreement will survive any termination of this Agreement but only with respect to claims causing the covenant or obligation to indemnify to apply which arose or were incurred on or prior to the Termination Date. 27.6.3 Any limitations or exclusions of liability contained in this Agreement will survive any termination of this Agreement. 27.6.4 Upon the termination of this Agreement for any reason any quantities of Gas then held by the Transporter in the Shipper’s Stock Account will be released and credited to the Shipper and delivered by the Transporter to the Shipper at the Delivery Point.

28. Confidentiality 28.1 Confidential Information All Confidential Information will during the Basic Term and until [insert number] years after the Termination Date be kept confidential and (except to the extent that disclosure is permitted in accordance with Article 28.2) will not be disclosed in whole or in part by a Party to any Third Party without the prior written consent of the other Party (such consent not to be unreasonably withheld).

28.2 Permitted disclosures 28.2.1 Notwithstanding Article 28.1 a Party (the Disclosing Party) will not be required to obtain the prior written consent of the other Party in respect of the disclosure of Confidential Information: (i)to the Disclosing Party’s Affiliates or to the Disclosing Party’s or its Affiliates’ directors, officers or employees but only to the extent reasonably required for the performance of this Agreement by the Disclosing Party; (ii)to persons professionally engaged by or on behalf of the Disclosing Party (including any auditors or insurers) but only to the extent reasonably required for the performance of this Agreement by the Disclosing Party;

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(iii)to any Lenders and their respective professional advisers but only to the extent reasonably required in connection with any financing or refinancing of the Disclosing Party’s rights, interests, covenants or obligations in accordance with this Agreement; (iv)to any bona fide proposed Transferee but only to the extent reasonably required in respect of a proposed transfer by the Disclosing Party; (v)to the Buyer but only to the extent reasonably required for the performance of this Agreement by the Disclosing Party; (vi)to the Transporter’s Representative or to the Shipper’s Representative; (vii)to the extent required by any applicable laws, rules and regulations of any recognised stock exchange or to the extent required by any lawful subpoena or other process in connection with any judicial, arbitral or administrative proceedings; (viii)to any Governmental Authority having jurisdiction over the Disclosing Party but only to the extent that the Disclosing Party is required to make such disclosure by applicable law or by directions or regulations of such Governmental Authority not having the force of law but in accordance with which the Disclosing Party is accustomed to comply. 28.2.2 In the event of the disclosure of Confidential Information to any Third Party in accordance with any of Articles 28.2.1(i), (ii), (iii), (iv), (v) or (vi) the Disclosing Party will ensure that such Third Parties will, prior to such disclosure, undertake to the Disclosing Party to keep the Confidential Information confidential on the same terms as this Article 28 provides for.

28.3 Announcements A Party will not issue or make any public statement or announcement regarding this Agreement without the prior written consent of the other Party (such consent not to be unreasonably withheld) except where such public statement or announcement is required to the extent required by any applicable laws, rules and regulations of any recognised stock exchange or to the extent required by any lawful subpoena or other process in connection with any judicial, arbitral or administrative proceedings (whereupon the Party making such public statement or announcement will promptly furnish the other Party with a copy).

29. Arbitration 29.1 Resolution of Disputes 29.1.1 Any dispute arising between the Parties relating to this Agreement which is not a dispute which will be determined by an Expert in accordance with Article 30 (a Dispute) will (unless the Parties otherwise agree in writing) be finally resolved by arbitration conducted in accordance with the UNCITRAL Rules in force at the time such arbitration is commenced. 29.1.2

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Pending the resolution of a Dispute in accordance with this Article 29 the Parties will to the greatest extent possible continue to perform their covenants and obligations in accordance with this Agreement. 29.1.3 Any reference of a Dispute to arbitration by a Party in accordance with this Article 29 may only be withdrawn by the written agreement of the Parties.

29.2 Commencement of arbitration A Party may at any time give notice to the other Party of the existence of a Dispute (an Arbitration Notice) and such Arbitration Notice will set out in reasonable detail the grounds for the Dispute in the opinion of the Party giving the Arbitration Notice.

29.3 Appointment of arbitrators The procedure for the appointment of arbitrators will be as follows: 29.3.1 each Party will appoint an arbitrator within [insert number] days after the date of receipt of an Arbitration Notice by the Party to which the Arbitration Notice was given and those arbitrators will then jointly appoint a third arbitrator within [insert number] days after the date of appointment of the second arbitrator to act as chairman of the arbitral panel; 29.3.2 arbitrators not appointed within the time limits specified in Article 29.3.1 will at the request of a Party be appointed by the President of the SPE; 29.3.3 the site of the arbitration will be London, England or such other place as the Parties may agree in writing; 29.3.4 the language of the arbitration will be English and the procedural law relating to the arbitration will be English law; 29.3.5 each Party will bear the costs and expenses of all professional advisers, witnesses and employees retained by it in connection with the arbitration.

29.4 Conflicting interests Any person appointed as an arbitrator will (subject to Article 29.5) be entitled to act as such notwithstanding that at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) the arbitrator has or may have some interest or duty which conflicts or may conflict with such appointment provided that: 29.4.1 the arbitrator will disclose such interest or duty of which he is aware before accepting such appointment (or promptly upon any such interest or duty arising subsequent to such appointment) and the appointing Party or the appointing © 2023 Thomson Reuters.

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arbitrators as appropriate will within [insert number] days after such disclosure have given him written confirmation of his appointment; 29.4.2 if any appointing Party or the appointing arbitrators as appropriate fails to give such confirmation because it or they consider that there is a material risk of such interest or duty prejudicing the arbitrator’s decision then any Party may request the President of the SPE to decide if such arbitrator will be appointed or not, having considered any submissions any Party may wish to make. If the President of the SPE decides not to confirm the appointment it will be deemed never to have been made and the appointing Party or the appointing arbitrators as appropriate will select another arbitrator in accordance with this Article 29.

29.5 Disqualification to act as an arbitrator No person will be appointed as an arbitrator who at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) is a director, officeholder or an employee of or directly or indirectly retained as consultant to the Shipper or the Transporter or the Buyer (or any Affiliate of any of the foregoing persons) or who is the holder directly or indirectly of shares in any of the foregoing persons (unless such person is a company quoted on a recognised stock exchange and the shareholding held is less than [insert number] % of the issued shares of any class).

29.6 The arbitration award 29.6.1 Any arbitration award rendered in consequence of an arbitration commenced in accordance with this Article 29: (i)will be in writing and will set out in reasonable detail the facts of the Dispute and the reasons for the decision of the arbitral panel; (ii)will apportion the costs of the arbitration between the Parties according to the determination of the arbitral panel; (iii)(to the greatest extent possible in accordance with applicable law) will be final and binding upon the Parties; (iv)will promptly be implemented by the Parties. 29.6.2 (Subject to Article 36.2) judgment on any arbitration award rendered in accordance with this Article 29 may be entered in court for its enforcement.

29.7 Consolidation of arbitrations Where all or a significant part of the matter of a Dispute has also been referred to arbitration in accordance with the Gas Sales Agreement then (insofar as the Parties are able to procure) the Dispute and the dispute in accordance with the Gas Sales Agreement will be resolved within the context of a single arbitration.

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30. Expert Determination 30.1 Determination by an Expert 30.1.1 Whenever any matter is to be referred to an Expert for determination in accordance with this Agreement or the Parties otherwise agree in writing that any dispute between them will be determined by an Expert then this Article 30 will apply. 30.1.2 Pending the determination of an Expert in accordance with this Article 30 the Parties will to the greatest extent possible continue to perform their covenants and obligations in accordance with this Agreement. 30.1.3 Any reference by a Party to an Expert for determination in accordance with this Article 30 may only be withdrawn by the written agreement of the Parties.

30.2 Appointment of an Expert The procedure for the appointment of an Expert will be as follows: 30.2.1 the Party wishing the appointment of an Expert to be made will give notice to that effect to the other Party and with such notice will give details of the matter which it is proposed will be determined by an Expert; 30.2.2 the Parties will promptly meet and in good faith discuss and attempt to agree in writing upon a single Expert to whom the matter will be referred for determination; 30.2.3 if within [insert number] days from the date of receipt of the notice by the Party to which such notice was given in accordance with Article 30.2.1 the Parties have failed to meet or have failed to agree upon an Expert in accordance with Article 30.2.2 then either Party may request the President of the SPE to select an Expert within [insert number] days and to give notice to the Parties of such selection; 30.2.4 upon an Expert being agreed or selected in accordance with this Article 30 either Party will give notice to such Expert of his selection and will request him to confirm in writing within [insert number] days whether or not he is willing and able to accept appointment as an Expert in respect of the matter; 30.2.5

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if such Expert is unwilling or unable to accept such appointment or has confirmed his acceptance of such appointment within the said period of [insert number] days then (unless the Parties are able to agree in writing upon the appointment of another Expert) either Party may request the President of the SPE to select an Expert within [insert number] days and to give notice to the Parties of such selection and the process in this Article 30.2 will be repeated until an Expert is found who accepts appointment; 30.2.6 the retainer agreement for the Expert will be entered into jointly by the Parties and the Parties will cooperate in good faith in the negotiation and agreement of the terms and in the administration of the said retainer agreement; provided that if there will be any dispute between the Parties on the amount of remuneration to be offered to the Expert or upon any of the other terms of his appointment (other than are provided for by this Agreement) then such amount or such other terms will be determined by the President of the SPE upon request by either Party whose decision will be final and binding on the Parties.

30.3 Identity of an Expert An Expert will be any person generally recognised as an expert in a field of expertise relevant to the matter to be determined.

30.4 Appointment of a replacement Expert If within [insert number] days after the acceptance by the Expert of his appointment in accordance with this Article 30 the Expert will not have rendered a final determination then at the request of a Party a new Expert will be appointed in accordance with this Article 30 and upon the acceptance of appointment by such new Expert the appointment of the previous Expert will cease, provided that if the previous Expert will have rendered a final determination prior to the date upon which the new Expert accepts his appointment in writing then such determination will be binding upon the Parties and the instructions to the new Expert will be withdrawn.

30.5 Acting as an Expert Any Expert appointed in accordance with this Article 30 will be deemed not to be an arbitrator but will render his determination as an expert and the provisions of the Arbitration Act 1996 will not apply to such Expert or his determination or the procedure by which he reaches his determination.

30.6 Conflicting interests Any person appointed as an Expert will (subject to Article 30.7) be entitled to act as such notwithstanding that at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) the Expert has or may have some interest or duty which conflicts or may conflict with such appointment provided that: 30.6.1 the Expert will disclose such interest or duty of which he is aware before accepting such appointment (or promptly upon any such interest or duty arising subsequent to such appointment) and the Parties will within [insert number] days after such disclosure have given him written confirmation of his appointment; 30.6.2 if any Party fails to give such confirmation because it considers that there is a material risk of such interest or duty prejudicing the Expert’s decision then the other Party may request the President of the SPE to decide if such Expert will be appointed or not, having considered any submissions any Party may wish to make. If the President of the SPE

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decides not to confirm the appointment it will be deemed never to have been made and the Parties will select another Expert in accordance with this Article 30.

30.7 Disqualification to act as an Expert No person will be appointed as an Expert who at the time of appointment (or at any time before the rendering of a determination in accordance with such appointment) is a director, officeholder or an employee of or directly or indirectly retained as consultant to the Shipper or the Transporter or the Transporter (or any Affiliate of any of the foregoing persons) or who is the holder directly or indirectly of shares in any of the foregoing persons (unless such person is a company quoted on a recognised stock exchange and the shareholding held is less than [insert number] % of the issued shares of any class).

30.8 Procedure for an Expert determination In any determination by an Expert in accordance with this Article 30: 30.8.1 each Party may make such written submissions and may supply such written information to the Expert as that Party thinks fit and the Expert will be entitled to request and receive such oral or written explanations, submissions or information from the Parties as he may consider desirable to enable him to render a determination (in which event each of the Parties will promptly comply with any such request); 30.8.2 subject to the Expert’s right to call for oral explanations, submissions or information by a Party in accordance with Article 30.8.1 all communications or submissions from a Party to the Expert relating to the matter will be made in writing and a copy thereof given simultaneously to the other Party; 30.8.3 if a Party is requested by the Expert to give any oral explanations, submissions or information to the Expert such Party will give to the other Party as much prior notice as is reasonably possible of the time and place at which such oral explanations, submissions or information are to be made or given and will afford to the other Party the opportunity to be present; 30.8.4 the language for all submissions, explanations, information, proposals and determinations in accordance with this Article 30 will be English; 30.8.5 the Expert will be entitled to obtain such independent professional and/or technical advice as he may reasonably require; 30.8.6 irrespective of whether the Expert requests oral explanations, submissions or information the Expert will require the Parties to give final written proposals on the matter in such form and by such date as the Expert may require (but in any event with not less than [insert number] days’ prior notice to the Parties); 30.8.7

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the Expert will give full written reasons for his determination and will furnish the Parties a draft of his proposed determination in respect of which the Parties will be entitled to make representations to the Expert within [insert number] days after receipt thereof. The Expert will render his final determination in writing to the Parties promptly thereafter; 30.8.8 the final determination of the Expert will (to the greatest extent possible in accordance with applicable law) be final and binding upon the Parties and neither Party will have any right to appeal the decision of the Expert; 30.8.9 each Party will bear the costs and expenses of all professional advisers, witnesses and employees retained by it in connection with the Expert determination but the cost and expenses of the Expert and any independent advisers to the Expert applicable to any matter arising in accordance with this Agreement will (unless the Expert otherwise determines) be apportioned equally between the Parties.

30.9 Consolidation of Expert determinations Where all or a significant part of the matter of a reference to an Expert in accordance with this Article 30 has also been referred to an expert for determination in accordance with the Gas Sales Agreement then (insofar as the Parties are able to procure) the matter hereunder and the matter in accordance with the Gas Sales Agreement will be determined within the context of a single Expert determination.

31. Insurance 31.1 Insurances to be effected by the Shipper The Shipper will throughout the Basic Term take out and maintain in force at its own expense the following insurances: 31.1.1 insurance covering loss of or damage to the Shipper’s Facilities including insurance in respect of delay in start-up and business interruption; 31.1.2 legal liability insurance covering bodily injury and/or death and/or property damage in an amount of at least US$ [insert amount] for each claim or series of claims arising out of any one incident; 31.1.3 such other insurances as may be required by the Shipper (acting in accordance with the Standard of a Reasonable and Prudent Person) in relation to the Shipper’s Facilities.

31.2 Insurances to be effected by the Transporter The Transporter will throughout the Basic Term take out and maintain in force at its own expense the following insurances:

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31.2.1 insurance covering loss of or damage to the Transporter’s Facilities including insurance in respect of delay in start-up and business interruption; 31.2.2 legal liability insurance covering bodily injury and/or death and/or property damage in an amount of at least US$ [insert amount] for each claim or series of claims arising out of any one incident; 31.2.3 such other insurances as may be required by the Transporter (acting in accordance with the Standard of a Reasonable and Prudent Person) in relation to the Transporter’s Facilities.

31.3 Identity of insurers and waivers of subrogation The policies of insurance to be taken out and maintained by or on behalf of each Party in accordance with this Article 31 will be taken out and maintained with insurers of sound financial reputation and will each contain a waiver of subrogation in respect of claims against the other Party, its connected persons and insurers.

31.4 Information disclosure Each Party may (subject to Article 28.2) disclose to the relevant insurers any information necessary to take out and maintain the policies of insurance required in accordance with this Article 31.

31.5 Certificates Copies of all certificates and renewal certificates in relation to the policies of insurance required and obtained in accordance with this Article 31 will be given by each Party to the other Party within [insert number] days after the date the relevant policy of insurance is taken out or renewed.

31.6 Insurance claims Each Party will give notice to the other Party within [insert number] days of becoming aware of any claim relating to this Agreement with respect to the required policies of insurance and each Party will give to the other Party such assistance as that other Party may reasonably require for the preparation, submission and negotiation of any insurance claims.

31.7 Effect of insurance Neither failure to comply nor full compliance with the insurance covenants or obligations in accordance with this Article 31 will limit or relieve a Party of its covenants, obligations or liabilities in accordance with this Agreement.

31.8 Application of insurance Each Party will duly file all claims against the policies of insurance taken out and maintained in accordance with this Article 31 and will take all necessary steps to collect any proceeds of such claims and (provided that a Reasonable and Prudent Person would do so) to use such proceeds which relate to the loss of or damage to the Shipper’s Facilities (in the

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case of the Shipper) or which relate to the loss of or damage to the Transporter’s Facilities (in the case of the Transporter) promptly to reinstate such Shipper’s Facilities or Transporter’s Facilities.

32. Notices 32.1 Method of giving notices Any request or notice to be given by or to a Party in accordance with this Agreement will be made in writing and in the English language and will be delivered by any form of courier (including by hand) or sent by recorded or registered postal delivery or sent by e-mail to the following address or to such other address as a Party may from time to time designate by notice to the other Party: To the Transporter or the Transporter’s Representative: [insert contact details] To the Shipper or the Shipper’s Representative: [insert contact details]

32.2 Receipt of notices Any notice given to a Party in accordance with this Agreement will be deemed to have been received by that Party as follows: 32.2.1 if delivered by any form of courier (including by hand) or sent by recorded or registered postal delivery: if delivered during business hours on a Business Day, when delivered; if not delivered during business hours on a Business Day, at [insert number] hours on the next Business Day; 32.2.2 if sent by e-mail: when recorded as sent by the sending Party.

33. Warranties and Representations 33.1 The Shipper’s warranties and representations The Shipper warrants and represents to the Transporter that: 33.1.1 the Shipper is duly incorporated and validly existing in accordance with [insert location] law, is a separate legal entity capable of suing and being sued and has the power, capacity and authority to own its assets and to conduct its business as currently conducted and as contemplated in this Agreement;

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33.1.2 neither the execution of this Agreement nor the performance of its covenants or obligations in accordance with this Agreement by the Shipper violates any law or regulation to which the Shipper is subject or any of the documents constituting the Shipper or breaches any agreement to which the Shipper is party or which is binding on the Shipper or any of its assets; 33.1.3 this Agreement constitutes a valid, binding and enforceable obligation of the Shipper in accordance with its terms and this Agreement is in the proper legal form for enforcement against the Shipper in [insert location] and contains no provision which is contrary to [insert location] law or which would not be upheld by the courts of [insert location]; 33.1.4 as at the Start Date the Shipper has full legal title to and is in possession of the Shipper’s Facilities and there are no Third Party interests (including any lien, mortgage, pledge, escrow, option, lease, licence) in or over any of the Shipper’s Facilities; 33.1.5 the Shipper is not party to any litigation, arbitration or other proceedings nor subject to any investigation or enquiry nor bound by any order, injunction, declaration, judgment or award of any court, arbitrator or other forum which could adversely affect the ability of the Shipper to perform its covenants or obligations in accordance with this Agreement; 33.1.6 the Shipper is not entitled to any immunity from suit, execution, attachment, or other legal or arbitral proceedings in [insert location].

33.2 The Transporter’s warranties and representations The Transporter warrants and represents to the Shipper that: 33.2.1 the Transporter is duly incorporated and validly existing in accordance with [insert location] law, is a separate legal entity capable of suing and being sued and has the power, capacity and authority to own its assets and to conduct its business as currently conducted and as contemplated in this Agreement; 33.2.2 neither the execution of this Agreement nor the performance of its covenants or obligations in accordance with this Agreement by the Transporter violates any law or regulation to which the Transporter is subject or any of the documents constituting the Transporter or breaches any agreement to which the Transporter is party or which is binding on the Transporter or any of its assets; 33.2.3 this Agreement constitutes a valid, binding and enforceable obligation of the Transporter in accordance with its terms and this Agreement is in the proper legal form for enforcement against the Transporter in [insert location] and contains no provision which is contrary to [insert location] law or which would not be upheld by the courts of [insert location];

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33.2.4 as at the Start Date the Transporter has full legal title to and is in possession of the Transporter’s Facilities and there are no Third Party interests (including any lien, mortgage, pledge, escrow, option, lease, licence) in or over any of the Transporter’s Facilities; 33.2.5 the Transporter is not party to any litigation, arbitration or other proceedings nor subject to any investigation or enquiry nor bound by any order, injunction, declaration, judgment or award of any court, arbitrator or other forum which could adversely affect the ability of the Transporter to perform its covenants or obligations in accordance with this Agreement; 33.2.6 the Transporter is not entitled to any immunity from suit, execution, attachment, or other legal or arbitral proceedings in [insert location]; 33.2.7 all quantities of Gas delivered by the Transporter to the Shipper in accordance with this Agreement at the Delivery Point are free of any liens, charges, encumbrances or adverse claims as to title.

33.3 Date and duration of warranties and representations The warranties and representations set out in Article 33.1 and in Article 33.2 are given solely as at the Execution Date except as follows: 33.3.1 the warranties and representations set out in Article 33.1.4 and in Article 33.2.4 are given solely as at the dates specified therein; 33.3.2 the warranties and representations set out in each of Articles 33.1.1, 33.1.2, 33.1.3, 33.1.5 and 33.1.6 and in each of Articles 33.2.1, 33.2.2, 33.2.3, 33.2.5, 33.2.6 and 33.2.7 will remain true and accurate and in force throughout the Basic Term as if given or made on each day during the Basic Term with reference to the facts and circumstances then subsisting.

33.4 Notice regarding warranties and representations Each Party will give notice to the other Party of any matter or event coming to its attention at any time which shows or may show that any warranty or representation made by it set out in Article 33.1 or Article 33.2 was when made or at any time thereafter has become untrue, inaccurate or misleading in any respect.

33.5 Breach of warranty Each Party will indemnify the other Party against any loss or liability arising from any breach of the warranties and representations given in accordance with this Article 33.

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34. Representatives 34.1 Appointment of the Transporter’s Representative The Transporter may designate and give notice to the Shipper of a person to act as its representative (the Transporter’s Representative) who is authorised to and will act as the representative of the Transporter for the following purposes: 34.1.1 the giving and receiving of all nominations, notices, statements and information required in accordance with this Agreement; 34.1.2 performance of the responsibilities of the Transporter in accordance with Schedule 4; 34.1.3 such other purposes as the Transporter may give notice of to the Shipper.

34.2 Appointment of the Shipper’s Representative The Shipper may designate and give notice to the Transporter of a person to act as its representative (the Shipper’s Representative) who is authorised to and will act as the representative of the Shipper for the following purposes: 34.2.1 the giving and receiving of all nominations, notices, statements and information required in accordance with this Agreement; 34.2.2 performance of the responsibilities of the Shipper in accordance with Schedule 4; 34.2.3 such other purposes as the Shipper may give notice of to the Transporter.

34.3 Deemed notices 34.3.1 Any nomination, notice, statement or information given by the Transporter’s Representative to the Shipper or to the Shipper’s Representative will be deemed to be given by the Transporter and any nomination, notice, statement or information given to the Transporter’s Representative by the Shipper or by the Shipper’s Representative will be deemed to be given to the Transporter.

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34.3.2 Any nomination, notice, statement or information given by the Shipper’s Representative to the Transporter or to the Transporter’s Representative will be deemed to be given by the Shipper and any nomination, notice, statement or information given to the Shipper’s Representative by the Transporter or by the Transporter’s Representative will be deemed to be given to the Shipper.

34.4 Revocation of appointments The Transporter may revoke the appointment of the Transporter’s Representative and the Shipper may revoke the appointment of the Shipper’s Representative in each case at any time but subject to giving notice thereof to the other Party, provided that any such notice of revocation will not have retrospective effect.

35. General 35.1 Entire agreement 35.1.1 This Agreement (and the Shipper’s Guarantee if and when provided in accordance with Article 17 and the Pipeline System Rules if and when effective in accordance with Article 18) will constitute the entire agreement between the Parties as to the subject matter of this Agreement and will supersede and take the place of all documents, minutes of meetings, letters or notes which may be in existence at the Execution Date and of all written or oral statements, representations and warranties which may have been made by or on behalf of the Parties as to such subject matter. 35.1.2 In entering into this Agreement a Party may not rely on any statement, representation, warranty, collateral contract or other assurance (except those expressly set out in this Agreement) made by or on behalf of any other Party before the Execution Date and each Party waives all rights, interests and remedies which but for Article 25 might otherwise be available to that Party in respect of any such statement, representation, warranty, collateral contract or other assurance, provided that nothing in Article 25 will limit or exclude any liability for fraud.

35.2 Amendment Subject to Article 35.4 or Article 35.11, this Agreement may only be amended or supplemented by a written agreement of the Parties which is expressed to be an amendment of or a supplement to this Agreement.

35.3 Waiver and exercise 35.3.1 The waiver, release or modification by a Party of a default by the other Party in the performance by that other Party of any of its covenants or obligations in accordance with this Agreement will not operate or be construed as a waiver, release or modification by the default waiving Party of any other default by the other Party.

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35.3.2 The waiver, release or modification by a Party of any of the rights or interests of the right waiving Party under or in respect of this Agreement will not operate or be construed as a waiver, release or modification of any other right or interest of the right waiving Party under or in respect of this Agreement. 35.3.3 Except where expressly provided to the contrary in this Agreement, a Party will not have and will not be deemed to have waived, released or modified any of its rights or interests or the requirement for or any default in the performance of the covenants or obligations of the other Party under or in respect of this Agreement unless the waiving Party has expressly stated in writing that it does so waive, release or modify such rights or interests or the requirement for or any default in the performance of such covenants or obligations. 35.3.4 The exercise by a Party of any of its rights or interests under or in respect of this Agreement will not constitute a waiver of nor in any way prejudice any other rights or interests available to that Party under or in respect of this Agreement and will be without prejudice to any liability of that Party for a breach of this Agreement.

35.4 Severability 35.4.1 If and for so long as any provision of this Agreement is found by a court or other tribunal of competent jurisdiction or is declared by applicable law to be invalid then such invalid provision will be deemed to be severed from this Agreement to the extent of its invalidity. The remaining provisions of this Agreement will continue in full force and effect and such severance will not (to the greatest possible extent) affect the validity or operation of any other provision of this Agreement. 35.4.2 In the event of the severance of a provision from this Agreement in accordance with Article 35.4.1 the Parties will meet and in good faith discuss and attempt to agree in writing a mutually satisfactory valid and enforceable provision to act as a replacement for the severed provision. 35.4.3 Any provision which has been severed from this Agreement in accordance with Article 35.4.1 will (if the Parties so agree in writing and subject to the modification or removal by the Parties of any replacement provision which has been implemented in accordance with Article 35.4.2) be reinstated to this Agreement upon the removal of the reason for the invalidity of the severed provision.

35.5 Rounding All roundings of values and numbers required for the purposes of this Agreement will be made according to ISO 31-0:1992(E) Annex B relating to rules for the rounding of numbers. If the value to be rounded is equally located between two numbers then rounding will be made to the higher integer number according to ISO 31-0:1992(E) Annex B Rule B.

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35.6 Disclaimer of agency This Agreement does not constitute a Party as the agent, partner or legal representative of the other Party for any purpose whatsoever and a Party will have no right or authority (express or implied) to assume or to create any covenant, obligation or responsibility on behalf of or in the name of the other Party.

35.7 Further assurances Each Party will perform or procure the performance of all such acts and things and will execute and deliver or procure the execution and delivery of all such documents as may be required by applicable law or as the other Party may reasonably require in order to implement or to give legal effect to this Agreement.

35.8 Exclusion of implied terms Any term, condition or warranty (including any relating to merchantability, satisfactory quality or fitness for purpose of goods, price and payment, delivery, transfer of title and risk, performance or termination) which might be implied as a term of this Agreement by law, treaty, custom and practice or otherwise is hereby excluding from application to this Agreement to the fullest extent possible.

35.9 Language This Agreement is prepared in the English language. In the event of translation of this Agreement into another language the English language version of this Agreement will prevail.

35.10 Costs Each Party will be solely responsible for its own costs and expenses (including the costs and expenses of professional advisers) incurred in connection with the preparation, negotiation, execution and ongoing management of this Agreement.

35.11 Relationship with the Pipeline System Rules 35.11.1 The Shipper acknowledges that the Pipeline System Rules when executed, issued and effective in accordance with Article 18 may be amended from time to time in accordance with their terms and that any such amendments thereto could necessitate a reciprocal amendment to this Agreement. 35.11.2 In the event that any amendments to this Agreement are required in consequence of an amendment to the Pipeline System Rules: (i)the Transporter will give the Shipper as much notice as it is reasonably able to of any proposed amendments; (ii)the Transporter will make such amendments to this Agreement and will promptly notify the Shipper of such amendments, which will thereupon become effective.

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35.12 Application of ABC provisions 35.12.1 Each Party covenants and undertakes that it will not conduct itself in relation to this Agreement in a way which is or which could be in violation of or inconsistent with, or which exposes or which could expose itself or the other Party to any loss or liability for a breach of, any of the ABC Provisions. 35.12.2 A Party will not be obliged to perform any obligation under or in respect of this Agreement to the extent that doing so is or could be in violation of or inconsistent with, or which exposes or which could expose itself or the other Party to any loss or liability for a breach of, any of the ABC Provisions.

36. Applicable Law and Jurisdiction 36.1 Applicable law This Agreement and any matter relating to this Agreement will be governed by and construed in accordance with English law (excluding any choice of law rules which would refer this Agreement or any matter relating to this Agreement to the laws of another jurisdiction).

36.2 Jurisdiction The courts of England and Wales will have exclusive jurisdiction in respect of this Agreement. IN WITNESS whereof the Parties have entered into this Agreement as of the Execution Date: SIGNED for and on behalf of the Transporter: By:___________ Name: Position: SIGNED for and on behalf of the Shipper: By:___________ Name: Position: Schedule 1 — The Delivery Point, the Input Point The Delivery Point, the Input Point Schedule 2 — The Delivery Point Specification, the Input Point Specification The Delivery Point Specification, the Input Point Specification Schedule 3 — The Shipper’s Facilities, the Transporter’s Facilities © 2023 Thomson Reuters.

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The Shipper’s Facilities, the Transporter’s Facilities Schedule 4 — Measurement Measurement Schedule 5 — The Reserved Capacity The Reserved Capacity Schedule 6 — Pipeline System Rules principles Pipeline System Rules principles

End of Document

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Appendix D - Additional Provisions Gas and LNG Sales and Transportation Agreements 7th Ed. Mainwork Section II Appendix D - Additional Provisions

Table of Contents P-01 P-02 P-03 P-04 P-05 P-06 P-07 P-08 P-09 P-10 P-11 P-12 P-13 P-14 P-15 P-16 P-17 P-18 P-19 P-20 P-21 P-22 P-23 P-24 P-25 P-26 P-27 P-28 P-29 P-30 P-31 P-32 P-33

GHV Adjustment Documents Control Relational Arrangements Usage Restrictions Contract Execution – Single Seller Contract Execution – Multiple Sellers Contract Execution – Agency Agency Appointment Agency Consequences – Limited Enforcement Agency Consequences – Open Enforcement Reclassification of Gas Quantities Advance Payment Amount Seller’s Declaration Undertake Gas Overtake Gas Deliver or Pay Seller’s Late Start Period Invoicing and Payment (Bi-Monthly) Buyer Self-Billing Offshore Title Transfer (DES) Offshore Title Transfer (FOB) Round-Up and Round-Down GHV Adjustment (LNG) Seven Day LNG Attributed Order Deliver or Pay (LNG) Wilful Arbitrage (LNG) End-Users Termination Fee Use of Confidential Information US LNG Export Restrictions Contract Time Trade Restraints

GHV Adjustment 1.

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P-01

If during the Basic Term the GHV of Gas to be delivered in accordance with this Agreement falls below [insert number] Btu/scf then for as long as such GHV is below [insert number] Btu/scf the Seller will in respect of any Nomination Period not be obliged to deliver Gas at the Delivery Point which, when measured by reference to the volume of Gas delivered, would exceed [insert number] mscf for such Nomination Period. In the exercise of this right the Seller will have no liability to the Buyer for Shortfall Gas which might otherwise arise in respect of any underdelivery of Gas (when measured by reference to the GHV of Gas delivered) which is thereby caused.

2. If during the Basic Term the GHV of Gas to be delivered in accordance with this Agreement exceeds [insert number] Btu/ scf then for as long as such GHV is in excess of [insert number] Btu/scf the Seller will in respect of any Nomination Period not be obliged to deliver Gas at the Delivery Point which, when measured by reference to the volume of Gas delivered, would be less than [insert number] mscf for such Nomination Period. In the exercise of this right the Seller will have no liability to the Buyer for Shortfall Gas which might otherwise arise in respect of any under delivery of Gas (when measured by reference to the GHV of Gas delivered) which is thereby caused.

Documents Control 1.1 P-02

The Seller will not amend, supplement or transfer any of the Seller’s Documents without the Buyer’s prior written consent.

1.2 The Buyer may only withhold its consent in accordance with Article 1.1 where the amendment, supplement or transfer of the Seller’s Documents which is proposed by the Seller would in the Buyer’s reasonable opinion be materially prejudicial to the interests of the Buyer in accordance with this Agreement.

1.3 If the Seller proposes to amend, supplement or transfer any of the Seller’s Documents the Seller will give not less than [insert number] days prior notice to the Buyer of its intention to do so.

1.4 Upon receipt of the Seller’s notice in accordance with Article 1.3 the Buyer will within [insert number] days of such receipt give notice to the Seller: (i)confirming the Buyer’s consent to the proposed amendment, supplement or transfer; or (ii)withholding such consent (and specifying in reasonable detail the grounds upon which such consent is being withheld).

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1.5 If the Buyer fails to give notice to the Seller in accordance with Article 1.4 then the Buyer will be deemed to have given notice to the Seller in accordance with Article 1.4.(i).

2.1 The Buyer will not amend, supplement or transfer any of the Buyer’s Documents without the Seller’s prior written consent.

2.2 The Seller may only withhold its consent in accordance with Article 2.1 where the amendment, supplement or transfer of the Buyer’s Documents which is proposed by the Buyer would in the Seller’s reasonable opinion be materially prejudicial to the interests of the Seller in accordance with this Agreement.

2.3 If the Buyer proposes to amend, supplement or transfer any of the Buyer’s Documents the Buyer will give not less than [insert number] days prior notice to the Seller of its intention to do so.

2.4 Upon receipt of the Buyer’s notice in accordance with Article 2.3 the Seller will within [insert number] days of such receipt give notice to the Buyer: (i)confirming the Seller’s consent to the proposed amendment, supplement or transfer; or (ii)withholding such consent (and specifying in reasonable detail the grounds upon which such consent is being withheld).

2.5 If the Seller fails to give notice to the Buyer in accordance with Article 2.4 then the Seller will be deemed to have given notice to the Buyer in accordance with Article 2.4.(ii). Buyer’s Documents means the Buyer’s Concession and the End-user Agreements. Seller’s Documents means the Seller’s Concession and the Gas Transportation Agreement.

Relational Arrangements P-03

Each Party enters into this Agreement as a principal on an arm’s length basis and in no other capacity (including as a fiduciary, trustee or agent of any other Party). Each Party acknowledges and agrees that this Agreement creates no implied obligations of good faith between the Parties in relation to its subject matter and is not intended to be and will not be construed as a form of relational arrangement between the Parties.

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Usage Restrictions P-04

At all times during the Term the Buyer will, with respect to all [gas] [LNG] delivered by the Seller to the Buyer pursuant to this Agreement only: (i)directly use or consume such [gas] [LNG] as a feedstock for petrochemical production or the generation of electrical power; (ii)market such [gas] [LNG] to distributors or wholesalers for resale to their own customers; (iii)resell such [gas] [LNG] to, or trade or exchange such [gas] [LNG] with, any other Person [in the following jurisdictions: [insert]].

Contract Execution – Single Seller P-05

THIS AGREEMENT is made this [insert] day of [insert] 20[insert] BETWEEN: (1)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Seller); and (2)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Buyer), (each of the Seller and the Buyer called a Party and the Seller and the Buyer together called the Parties).

Contract Execution – Multiple Sellers P-06

THIS AGREEMENT is made this [insert] day of [insert] 20[insert] BETWEEN: (1)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (A Co); (2)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (B Co); (3)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (C Co), (each of A Co, B Co and C Co together called the Seller);

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(4)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Buyer), (each of the Seller and the Buyer called a Party and the Seller and the Buyer together called the Parties).

Contract Execution - Agency P-07

THIS AGREEMENT is made this [insert] day of [insert] 20[insert] BETWEEN: (1)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location], acting for itself and as the agent of the Co-Sellers (A Co); and (2)[insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (the Buyer), (each of A Co and the Co-Sellers together called the Seller, each of the Seller and the Buyer called a Party and the Seller and the Buyer together called the Parties). Co-Sellers means: [insert name], a company incorporated in [insert location] with company registration number [insert number] and having its principal place of business at [insert location] (B Co) and [insert name], a company incorporated in [insert number] with company registration number [insert number] and having its principal place of business at [insert location] (C Co).

Agency Appointment P-08

The Co-Sellers have appointed A Co to act as their agent in the performance of this Agreement by a written instrument dated [insert date] which is attached to this Agreement as Appendix 1. The Co-Sellers will not revoke A Co’s appointment to act as their agent in the performance of this Agreement, and A Co will not resign the appointment to act as the agent of the Co-Sellers in the performance of this Agreement, without the Buyer’s prior written consent (such consent not to be unreasonably withheld or delayed).

Agency Consequences – Limited Enforcement 1. P-09

Notwithstanding the status of the Co-Sellers as parties to this Agreement, the Buyer undertakes that it will enforce this Agreement only against A Co and that it will not commence proceedings in respect of, or otherwise seek to enforce, this Agreement against the Co-Sellers (provided that this provision is without prejudice to the liabilities which the Co-Sellers may have to the Buyer in respect of this Agreement).

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2. Notwithstanding the status of the Co-Sellers as parties to this Agreement, each of A Co and the Co-Sellers undertake that only A Co will enforce this Agreement against the Buyer and that none of the Co-Sellers will commence proceedings in respect of, or otherwise seek to enforce, this Agreement against the Buyer (provided that this provision is without prejudice to the liabilities which the Buyer may have to the Co-Sellers in respect of this Agreement).

Agency Consequences – Open Enforcement 1. P-10

Notwithstanding the execution of this Agreement by A Co as the agent of the Co-Sellers, the Buyer may commence proceedings in respect of, or otherwise seek to enforce, this Agreement against A Co and each of the Co-Sellers in respect of the liabilities which the Seller may have to the Buyer in respect of this Agreement.

2. Notwithstanding the execution of this Agreement by A Co as the agent of the Co-Sellers, each of A Co and the Co-Sellers may commence proceedings in respect of, or otherwise seek to enforce, this Agreement against the Buyer in respect of the liabilities which the Buyer may have to A Co and the Co-Sellers in respect of this Agreement.

Reclassification of Gas Quantities 1. Reclassification as Make Up Gas P-11

Where the Buyer has taken delivery of and has paid for a quantity of Gas which has subsequently been reclassified as Make Up Gas then: (i)the Outstanding Annual Deficiency will be reduced by a quantity of Gas equal to the said quantity of Gas; (ii)the Seller will reimburse to the Buyer the amount so paid by the Buyer.

2. Removal from classification as Make Up Gas Where the Buyer has taken delivery of a quantity of Gas which at the time of such taking of delivery was classified as Make Up Gas and which has subsequently been removed from classification as Make Up Gas then: (i)the Outstanding Annual Deficiency will be increased by a quantity of Gas equal to the said quantity of Gas; (ii)the Buyer will pay to the Seller an amount equal to the said quantity of Gas multiplied by the Contract Price which would have applied when such Gas was taken delivery of by the Buyer.

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3. Reclassification as delivered Gas If any quantity of Gas which the Seller has failed to deliver to the Buyer at the Delivery Point in respect of a Nominated Quantity is subsequently agreed in writing between the Parties or is determined to have been delivered to the Buyer then: (i)where such quantity of Gas was not originally classified as Shortfall Gas the Buyer will not be entitled to an adjustment in accordance with Article [reference take or pay] in respect of such quantity of Gas and the Buyer will pay to the Seller an amount equal to the said quantity of Gas multiplied by the Contract Price which would have applied when such quantity of Gas in fact was delivered; (ii)where such quantity of Gas was originally classified as Shortfall Gas paragraphs (i) and (ii) of Section 4 will apply thereto.

4. Removal from classification as delivered Gas If any quantity of Gas delivered by the Seller to the Buyer at the Delivery Point in respect of a Nominated Quantity is subsequently agreed in writing between the Parties or is determined not to have been delivered to the Buyer then: (i)where such quantity of Gas would be Shortfall Gas paragraphs (i) and (ii) of Section 5 will apply thereto and the Seller will pay to the Buyer an amount equal to the said quantity of Gas multiplied by the Contract Price applicable at the time such quantity of Gas was delivered; (ii)where such quantity of Gas would not be classified as Shortfall Gas the Buyer will be entitled to an adjustment to the ACQ in accordance with Article [reference take or pay] (where such adjustment applies) and the Seller will pay to the Buyer an amount equal to the said quantity of Gas multiplied by the Contract Price applicable at the time such quantity of Gas was delivered.

5. Verification of the allocation of inability to deliver Gas If the verification performed in accordance with Article [reference verification] demonstrates that in consequence of the allocation of any quantities of Gas made by the Seller the quantity of Gas allocated by the Seller to the Buyer (if any) is less than the quantity of Gas which should have been allocated to the Buyer then: (i)where the Seller’s failure to properly allocate Gas to the Buyer is due to the Seller’s Wilful Misconduct Article [reference wilful misconduct] will apply to the Seller in respect of any un-allocated quantity of Gas; (ii)in all other cases the Seller will be obliged to deliver to the Buyer a quantity of Gas equal to the un-allocated quantity of Gas and the Buyer will pay to the Seller an amount equal to the said quantity of Gas multiplied by the Contract Price which would have applied when the un-allocated quantity of Gas should originally have been delivered. If the verification performed in accordance with Article [reference verification] demonstrates that in consequence of the allocation of any quantities of Gas made by the Seller the quantity of Gas allocated by the Seller to the Buyer is greater than the quantity of Gas which should have been allocated to the Buyer then no adjustment will be made between the Parties in respect thereof.

6. Verification of the allocation of inability to take delivery of Gas If the verification performed in accordance with Article [reference verification] demonstrates that in consequence of the allocation of any quantities of Gas made by the Buyer the quantity of Gas allocated by the Buyer to the Seller (if any) is less than the quantity of Gas which should have been allocated to the Seller then: (i)where the Buyer’s failure to properly allocate Gas to the Seller is due to the Buyer’s Wilful Misconduct Article [reference wilful misconduct] will apply to the Buyer in respect of any un-allocated quantity of Gas;

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(ii)in all other cases the ACQ for the Contract Year applicable when the verification in accordance with Article [reference verification] has been completed will be increased by a quantity of Gas equal to the un-allocated quantity of Gas. If the verification performed in accordance with Article [reference verification] demonstrates that in consequence of the allocation of any quantities of Gas made by the Buyer the quantity of Gas allocated by the Buyer to the Seller is greater than the quantity of Gas which should have been allocated to the Seller then no adjustment will be made between the Parties in respect thereof.

7. Reclassification as Shortfall Gas If any quantity of Gas which the Seller has failed to deliver to the Buyer at the Delivery Point in respect of a Nominated Quantity was not originally classified as Shortfall Gas and it is subsequently agreed in writing between the Parties or is determined that such undelivered quantity of Gas is Shortfall Gas then: (i)the Buyer will be entitled to an adjustment to the ACQ in accordance with Article [reference take or pay] in respect of such undelivered quantity of Gas on the grounds that it is Shortfall Gas (but without prejudice to the prohibition on the double counting of adjustments in accordance with Article [reference take or pay]); (ii)the Monthly Shortfall Gas Aggregate will be increased by such undelivered quantity of Gas.

8. Removal from classification as Shortfall Gas If any quantity of Gas which the Seller has failed to deliver to the Buyer at the Delivery Point in respect of a Nominated Quantity has been classified as Shortfall Gas and it is subsequently agreed in writing between the Parties or is determined that such undelivered quantity of Gas is not Shortfall Gas then: (i)the Buyer will not be entitled to an adjustment to the ACQ in accordance with Article [reference take or pay] in respect of such undelivered quantity of Gas (but this will be without prejudice to the right of the Buyer to claim an Adjustment in accordance with Article [reference take or pay] in respect of such undelivered quantity of Gas on any other grounds which may apply); (ii)the Monthly Shortfall Gas Aggregate will be reduced by such undelivered quantity of Gas, except that to the extent that the Buyer has paid for any subsequent quantity of Gas at the Shortfall Gas Price in respect of such undelivered quantity of Gas then the Buyer will pay to the Seller an amount equal to the said undelivered quantity of Gas multiplied by the difference between the Shortfall Gas Price and the Contract Price applicable at the time that the Buyer paid for Gas at the Shortfall Gas Price.

9. Reclassification as Undertake Gas Where a quantity of Gas has subsequently been reclassified as Undertake Gas then the Monthly Undertake Gas Aggregate for the Contract Month in which such reclassification took place will be increased by such quantity of Gas.

10. Removal from classification as Undertake Gas Where the Buyer has become liable to pay the Undertake Gas Premium in respect of a quantity of Undertake Gas which has subsequently been removed from classification as Undertake Gas then the Monthly Undertake Gas Aggregate will be reduced by such quantity of Gas, except that to the extent that the Buyer has paid the Undertake Gas Premium in respect of such quantity of Gas then the Seller will repay the said Undertake Gas Premium to the Buyer.

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11. Reclassification as Overtake Gas Where a quantity of Gas has subsequently been classified as Overtake Gas then the Monthly Overtake Gas Aggregate for the Contract Month in which such reclassification took place will be increased by such quantity of Gas.

12. Removal from classification as Overtake Gas Where the Buyer has become liable to pay the Overtake Gas Premium in respect of a quantity of Overtake Gas which has subsequently been removed from classification as Overtake Gas then the Monthly Overtake Gas Aggregate will be reduced by such quantity of Gas, except that to the extent that the Buyer has paid the Overtake Gas Premium in respect of such quantity of Gas then the Seller will repay the said Overtake Gas Premium to the Buyer.

Advance Payment Amount 1. P-12

As soon as practicable after the date of this Agreement, and in any event prior to the Start Date, the Buyer will pay into the Seller’s Account the First Advance Payment Amount, which is agreed between the Parties to be an amount which is reasonably equal to the Seller’s financial exposure to the Buyer for the first seven (7) days during which Gas is supplied by the Seller to the Buyer after the Start Date.

2. No later than four (4) Working Days before the start of each Week the Seller will give the Buyer a Weekly Proforma Statement (which will include the Seller’s best estimate of the quantity of Gas which is expected to be delivered to the Buyer during that Week). Within two (2) Working Days of the Buyer’s receipt of a Weekly Proforma Statement or before the start of the Week (whichever is earlier) the Buyer will pay into the Seller’s Account an amount equal to the Advance Payment Amount which results from that Weekly Proforma Statement.

3. Upon the termination of this Agreement and the final settlement of all liabilities of the Buyer to the Seller under this Agreement the Seller will repay to the Buyer the entirety of any Advance Payment Amount then remaining. Advance Payment Amount means the product (expressed in US$) of the Seller’s best estimate of the quantity of Gas which is expected to be delivered to the Buyer as set out in a Weekly Proforma Statement and the Contract Price. First Advance Payment Amount means US$•.

Seller’s Declaration P-13

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By no later than [insert number] days prior to the first Gas Day of each Contract Month the Seller will give notice to the Buyer of the deliverable quantity of Gas applicable to each Gas Day of such Contract Month (the Seller’s Declaration) [provided that the deliverable quantity of Gas applicable for each Gas Day of such Contract Month will not exceed [insert number] mscf/Gas Day]. Thereafter the provisions of this Article [reference nominations] will apply to the nominations of Gas to be delivered on each Gas Day in such Contract Month, provided that in respect of each Gas Day the total quantity of Gas which the Buyer may nominate for delivery will not exceed the corresponding daily deliverable quantity of Gas set out in the Seller’s Declaration.

Undertake Gas 1.1 P-14

If in respect of any Nominated Quantity the quantity of Gas which the Buyer has taken delivery of at the Delivery Point is less than the quantity of Gas delivered by the Seller to the Buyer at the Delivery Point in respect of that Nominated Quantity then the difference between the quantity of Gas which the Buyer has taken delivery of (if any) and the quantity of Gas delivered by the Seller to the Buyer at the Delivery Point in respect of that Nominated Quantity will (subject to Article 1.3) be classified as Undertake Gas and the terms undertake and undertaken will be construed accordingly.

1.2 The Buyer will not undertake any quantity of Gas in respect of any Nominated Quantity.

1.3 The definition of Undertake Gas will not include any quantity of Gas: (i)which the Buyer is entitled to claim relief for in accordance with Article [reference force majeure]; (ii)which the Buyer undertakes as a result of any act or omission of the Seller (including any failure of the Seller to deliver Gas to the Buyer at the Delivery Point in respect of Nominated Quantity); (iii)which the Buyer undertakes during the Commissioning Period; (iv)which the Buyer has refused to take delivery of in accordance with Article [reference off-specification]; (v)which is within the Undertake Gas Tolerance (subject to Article 1.7).

1.4 The Undertake Gas Tolerance will in respect of any Nominated Quantity be any quantity of Gas which is equal to or less than [insert number] % of the quantity of Gas represented by that Nominated Quantity.

1.5 If in respect of any Nominated Quantity the Buyer has undertaken a quantity of Gas which is within the Undertake Gas Tolerance then (subject to Article 1.7) such undertaken quantity of Gas will not be Undertake Gas.

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1.6 If in respect of any Nominated Quantity the Buyer has undertaken a quantity of Gas which is greater than the Undertake Gas Tolerance then the entire quantity of Gas which the Buyer has undertaken will be Undertake Gas.

1.7 Where in any Contract Year the aggregate quantity of Gas which would otherwise be classified as Undertake Gas but for the application of the Undertake Gas Tolerance becomes equal to or greater than [insert number] % of the ACQ for such Contract Year then Article 1.4 will cease to apply and will have no further effect for the remainder of that Contract Year.

1.8 If in respect of a Contract Month any quantity of Undertake Gas arises then: (i)the aggregate quantity of Gas classified as Undertake Gas in respect of that Contract Month will be called the Monthly Undertake Gas Aggregate; (ii)the Monthly Statement in respect of that Contract Month will recite an amount of money due and owing from the Buyer to the Seller equal to the Monthly Undertake Gas Aggregate multiplied by the Undertake Gas Premium.

1.9 The Undertake Gas Premium will, subject to Article 1.10, be an amount equal to [insert number] % of the Contract Price applicable to the quantity of Gas delivered by the Seller to the Buyer at the Delivery Point which the Buyer has undertaken.

1.10 In the event of any quantity of Undertake Gas arising in respect of any quantity of Gas delivered by the Seller to the Buyer at the Delivery Point: (i)to which the Excess Gas Price would apply then the Undertake Gas Premium will be an amount equal to [insert number] % of the Excess Gas Price; (ii)to which the Shortfall Gas Price would apply then the Undertake Gas Premium will be an amount equal to [insert number] % of the applicable Contract Price; (iii)which would be Make Up Gas then the Undertake Gas Premium will be an amount equal to [insert number] % of the Contract Price applicable at the time the Make Up Gas is being delivered (without prejudice to the Buyer’s right to take delivery of such Make Up Gas in accordance with Article [reference make up]).

Overtake Gas 1.1 P-15

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If in respect of any Nominated Quantity the quantity of Gas which the Buyer has taken delivery of at the Delivery Point is greater than the quantity of Gas delivered by the Seller to the Buyer at the Delivery Point in respect of that Nominated Quantity then the quantity of Gas which the Buyer has taken delivery of which is greater than the quantity of Gas delivered by the Seller at the Delivery Point in respect of that Nominated Quantity will (subject to Article 1.3) be classified as Overtake Gas and the terms overtake and overtaken will be construed accordingly.

1.2 The Buyer will not overtake any quantity of Gas in respect of any Nominated Quantity.

1.3 The definition of Overtake Gas will not include any quantity of Gas: (i)which the Buyer is entitled to claim relief for in accordance with Article [reference force majeure]; (ii)which the Buyer overtakes as a result of any act or omission of the Seller; (iii)which the Buyer overtakes during the Commissioning Period; (iv)which is within the Overtake Gas Tolerance (subject to Article 1.7).

1.4 The Overtake Gas Tolerance will in respect of any Nominated Quantity be any quantity of Gas which is equal to or less than [insert number] % of the quantity of Gas represented by that Nominated Quantity.

1.5 If in respect of any Nominated Quantity the Buyer has overtaken a quantity of Gas which is within the Overtake Gas Tolerance then (subject to Article 1.7) such overtaken quantity of Gas will not be Overtake Gas.

1.6 If in respect of any Nominated Quantity the Buyer has overtaken a quantity of Gas which is greater than the Overtake Gas Tolerance then the entire quantity of Gas which the Buyer has overtaken will be Overtake Gas.

1.7 Where in any Contract Year the aggregate quantity of Gas which would otherwise be classified as Overtake Gas but for the application of the Overtake Gas Tolerance in accordance with Article 1.3 becomes equal to or greater than [insert number] % of the ACQ for such Contract Year then Article 1.3 will cease to apply and will have no further effect for the remainder of that Contract Year.

1.8 If in respect of a Contract Month any quantity of Overtake Gas arises then: (i)the aggregate quantity of Gas classified as Overtake Gas in respect of that Contract Month will be called the Monthly Overtake Gas Aggregate;

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(ii)the Monthly Statement in respect of that Contract Month will recite an amount of money due and owing from the Buyer to the Seller equal to the Monthly Overtake Gas Aggregate multiplied by the Overtake Gas Premium.

1.9 The Overtake Gas Premium will, subject to Article 1.10, be an amount equal to [insert number] % of the Contract Price applicable to the quantity of Gas delivered by the Seller to the Buyer at the Delivery Point which the Buyer has overtaken.

1.10 In the event of any quantity of Overtake Gas arising in respect of any quantity of Gas delivered by the Seller to the Buyer at the Delivery Point: (i)to which the Excess Gas Price would apply then the Overtake Gas Premium will be an amount equal to [insert number] % of the Excess Gas Price; (ii)to which the Shortfall Gas Price would apply then the Overtake Gas Premium will be an amount equal to [insert number] % of the applicable Contract Price; (iii)which would be Make Up Gas then the Overtake Gas Premium will be an amount equal to [insert number] % of the Contract Price applicable at the time the Make Up Gas is being delivered (without prejudice to the Buyer’s right to take delivery of such Make Up Gas free of charge in accordance with Article [reference make up]).

1.11 Any quantity of Overtake Gas which the Buyer has taken delivery of will not count towards the Annual Take or Pay Quantity but will count toward the Contract Quantity.

Deliver or Pay P-16

If in respect of any Contract Month any quantity of Shortfall Gas arises then the Seller will pay to the Buyer an amount equal to the Monthly Shortfall Aggregate multiplied by the applicable Contract Price (the Deliver or Pay Amount). The Parties agree that the Deliver or Pay Amount is a liquidated damage for which the Seller will be liable regardless of the level of the Buyer’s loss or liability which results from a Shortfall.

Seller’s Late Start Period 1.1 P-17

If the Seller Ready Date occurs after the later to occur of the Buyer Ready Date and the Start Date (other than because of a default by the Buyer or the occurrence of an event of Force majeure affecting the Seller) there will be a period (the

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Seller’s Late Start Period) commencing from the later to occur of the Buyer Ready Date and the Start Date until the Seller Ready Date.

1.2 The Shortfall Gas Price applicable to any quantity of Gas which the Seller fails to deliver to the Buyer at the Delivery Point in respect of any Nominated Quantity during the Seller’s Late Start Period will be [insert number] % of the Contract Price applicable at the time that such quantity of Shortfall Gas arose.

1.3 If the Seller’s Late Start Period exceeds [insert number] consecutive days then the Buyer may (subject to Article 1.4) give notice to the Seller to require the Seller to pay to the Buyer (subject to compliance by the Buyer with Article [reference invoicing and payment provision]) by way of liquidated damages an amount equal to the Monthly Shortfall Gas Aggregate for such [insert number] day period multiplied by [insert number] % of the arithmetic average of the Contract Prices applicable to the said [insert number] day period.

1.4 Any notice to be given by the Buyer in accordance with Article 1.3 will only be valid if given to the Seller within [insert number] days after the end of the [insert number] day period referred to in Article 1.3. If such notice is not so given in accordance with this Article 1.4 then the Buyer’s rights and interests in accordance with Article 1.3 will cease to apply and will have no further effect.

1.5 Upon payment by the Seller of the amount specified in accordance with Article 1.3 the Buyer will have no further right, interest or remedy against the Seller in respect of any quantity of Shortfall Gas arising within the first [insert number] consecutive days of the Seller’s Late Start Period.

1.6 If the Seller’s Late Start Period exceeds [insert number] consecutive days then in respect of each day during the Seller’s Late Start Period following such [insert number] day period the Shortfall Gas Price will thereafter apply and Article 1.2 will cease to apply and will have no further effect. Buyer Ready Date means the first date upon which the Buyer is able to take delivery at the Delivery Point of a quantity of Gas equal to the DCQ for the first Gas Day of the first Contract Year. Seller Ready Date means the first date upon which the Buyer is able to take delivery at the Delivery Point of a quantity of Gas equal to the DCQ for the first Gas Day of the first Contract Year.

Invoicing and Payment (Bi-Monthly) P-18

The Seller will prepare and will give to the Buyer:

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(i)by not later than the twenty-first (21st) day of each Contract Month an invoice in respect of the period from the first (1st) day to the fifteenth (15th) day of that Contract Month (the First Bi-monthly Statement); and (ii)by not later than the sixth (6th) day after the end of each Contract Month an invoice in respect of the period from the sixteenth (16th) day to the last day of the preceding Contract Month (the Second Bi-monthly Statement) each of which will show the following information.

Buyer Self-Billing 1. P-19

The Buyer will prepare and will give to the Seller by not later than the [insert number] day after the end of each Contract Month a self-billing invoice in respect of Gas sold and delivered in accordance with this Agreement in respect of that Contract Month. The Seller will accept each self-billed invoice created by the Buyer in respect of the deliveries of Gas made to the Buyer by the Seller.

2. If, in respect of any Contract Month, the Buyer fails to give to the Seller an invoice when required to do so in accordance with the terms of this Agreement then the Seller will prepare an invoice in respect of that Contract Month and will give such invoice to the Buyer.

3. This procedure described in this Article 1 has been agreed between the Parties on the basis that the Buyer has an authorisation in accordance with the applicable goods and services tax legislation to self-bill for the purpose of goods and services tax recovery and if the Buyer will cease to be so authorised then the Parties will in good faith seek to agree an appropriate replacement procedure which replacement procedure will remain the same as the existing procedure in all material respects.

Offshore Title Transfer (DES) 1.1 P-20

Title to and the risk of loss of or damage to the Full Cargo Lot will, at the point immediately prior to the point at which the LNG Ship crosses the Boundary Line inward bound to the Unloading Port, transfer from the Seller to the Buyer.

1.2

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Notwithstanding the transfer of title and risk in accordance with Article 1.1, custody of the Full Cargo Lot will remain with the Seller at all times whenever the LNG Ship is within the Territorial Waters, except that custody of any quantities of LNG which are unloaded from the LNG Ship at the Delivery Point will transfer from the Seller to the Buyer at the Delivery Point.

1.3 The Buyer hereby grants licence to the Seller to use the Inward Bound Voyage Fuel, the Outward Bound Voyage Fuel and the Heel, which licence: (i)will become effective when title to the Full Cargo Lot has transferred from the Seller to the Buyer in accordance with Article 1.1; (ii)will cease to be effective in respect of the Inward Bound Voyage Fuel when the LNG Ship has completed the unloading of the Full Cargo Lot at the Delivery Point; (iii)will cease to be effective in respect of the Outward Bound Voyage Fuel and the Heel at the point immediately after the point at which the LNG Ship crosses the Boundary Line outward bound from the Unloading Port; (iv)will not require any payment or other consideration therefor to pass from the Seller to the Buyer

1.4 Title to and the risk of loss of or damage to all quantities of LNG remaining in the LNG Ship at the point immediately after the point at which the LNG Ship crosses the Boundary Line outward bound from the Unloading Port will at that point transfer from the Buyer to the Seller (without any payment or other consideration therefor to pass from the Seller to the Buyer).

1.5 Without prejudice to any of the provisions of this Article 1 the Seller will indemnify and hold the Buyer harmless in respect of any loss of or damage to the Full Cargo Lot or any liability arising in accordance with or in connection with the Full Cargo Lot during the period when the LNG Ship is within the Territorial Waters prior to the point where custody of any part of the Full Cargo Lot transfers to the Buyer. – or – Without prejudice to any of the provisions of this Article 1 the Seller will procure and will maintain in force a policy of insurance (upon which the Buyer will be recorded as a co-insured person) covering any loss of or damage to the Full Cargo Lot or any liability arising in accordance with or in connection with the Full Cargo Lot during the period when the LNG Ship is within the Territorial Waters prior to the point where custody of any part of the Full Cargo Lot transfers to the Buyer. Boundary Line means the customary accepted maritime line of demarcation between international waters and the Territorial Waters. Full Cargo Lot means the total cargo of LNG transported by an LNG Ship which is loaded at the Loading Port up to its maximum safe capacity. Heel means any quantities of LNG remaining in the LNG Ship after the Full Cargo Lot has been unloaded at the Unloading Port as may reasonably be required by the Seller for use as ballast cooling volumes in the LNG Ship for the outward bound voyage from the Unloading Port. Inward Bound Voyage Fuel means any quantities of LNG as may reasonably be required by the Seller for use as fuel in the LNG Ship for its voyage from the Boundary Line inward bound to the Unloading Port.

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Outward Bound Voyage Fuel means any quantities of LNG as may reasonably be required by the Seller for use as fuel in the LNG Ship for its voyage from the Unloading Port outward bound to the Boundary Line. Territorial Waters means the territorial waters of the country within which the Unloading Port is located.

Offshore Title Transfer (FOB) 1.1 P-21

The Seller will have title to and the risk of loss of or damage to the Full Cargo Lot as the Full Cargo Lot is loaded into the LNG Ship at the Delivery Point. Such title and risk will, at the point immediately after to the point at which the LNG Ship crosses the Boundary Line outward bound from the Loading Port, transfer from the Seller to the Buyer.

1.2 Notwithstanding the transfer of title and risk in accordance with Article 1.1, custody of the Full Cargo Lot will transfer from the Seller to the Buyer as the Full Cargo Lot is loaded into the LNG Ship at the Delivery Point and will remain with the Buyer at all times whenever the LNG Ship is within the Territorial Waters.

1.3 The Seller hereby grants licence to the Buyer to use the Outward Bound Voyage Fuel and the Heel, which licence: (i)will become effective when custody of the Cargo has transferred from the Seller to the Buyer in accordance with Article 1.1; (ii)will cease to be effective in respect of the Outward Bound Voyage Fuel and the Heel at the point immediately after the point at which the LNG Ship crosses the Boundary Line outward bound from the Loading Port; (iii)will not require any payment or other consideration therefor to pass from the Buyer to the Seller.

1.4 Without prejudice to any of the provisions of this Article 1 the Seller will indemnify and hold the Buyer harmless in respect of any loss of or damage to the Full Cargo Lot or any liability arising in accordance with or in connection with the Full Cargo Lot during the period when the LNG Ship is within the Territorial Waters prior to the point where title to and risk in the Full Cargo Lot transfers to the Buyer in accordance with Article 1.1. – or – Without prejudice to any of the provisions of this Article 1 the Seller will procure and will maintain in force a policy of insurance (upon which the Buyer will be recorded as a co-insured person) covering any loss of or damage to the Full Cargo Lot or any liability arising in accordance with or in connection with the Full Cargo Lot during the period when the LNG Ship is within the Territorial Waters prior to the point where title to and risk in the Full Cargo Lot transfers to the Buyer in accordance with Article 1.1.

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Heel means any quantities of LNG in the LNG Ship after the Full Cargo Lot has been loaded at the Delivery Point as may reasonably be required by the Seller for use as ballast cooling volumes in the LNG Ship for the outward bound voyage from the Loading Port. Outward Bound Voyage Fuel means any quantities of LNG as may reasonably be required by the Seller for use as fuel in the LNG Ship for its voyage from the Loading Port outward bound to the Boundary Line. Territorial Waters means the territorial waters of the country within which the Loading Port is located.

Round-Up and Round-Down P-22

Except in the case of the last Contract Year, if, during the development of the Annual Delivery Programme for a Contract Year or during that Contract Year itself, it is apparent that the delivery of the AACQ (together with any Make-Up LNG which is scheduled to be delivered by the Seller to the Buyer at the Unloading Port during such Contract Year) would require the Seller to deliver and the Buyer to take delivery of a quantity of LNG at the Unloading Port that is less than the full volume of the estimated Cargo for the last LNG Ship scheduled in the Annual Delivery Programme for that Contract Year then: (i)the Buyer may request that the AACQ for that Contract Year is increased by an amount of LNG sufficient to fill the full volume of the estimated Cargo for the last LNG Ship scheduled in the Annual Delivery Programme for that Contract Year (a Round-Up Quantity) and the Seller will use reasonable endeavours to accommodate such request (whereupon the AACQ for the next following Contract Year will be reduced by an equivalent amount of LNG); or (ii)the Buyer may request that the AACQ for that Contract Year is decreased by an amount of LNG equivalent to the amount that is less than the full volume of the estimated Cargo for the last LNG Ship scheduled in the Annual Delivery Programme for that Contract Year (a Round-Down Quantity) and the Seller will use reasonable endeavours to accommodate such request (whereupon the AACQ for the next following Contract Year will be increased by an equivalent amount of LNG and the relevant LNG Ship will be cancelled) provided that if the Buyer does not make an election in accordance with (i) or (ii) above by not less than [insert number] days prior to the scheduled date for loading the last LNG Ship scheduled in the Annual Delivery Programme for that Contract Year then the Seller will make the election as it sees fit.

GHV Adjustment (LNG) 1. P-23

Except in the case of the last Contract Year, if, during the development of the Annual Delivery Programme for a Contract Year or during that Contract Year itself, it is apparent that the delivery of the AACQ (together with any Make-Up LNG scheduled to be delivered by the Seller to the Buyer at the Unloading Port during such Contract Year) would result in a GHV Underdelivery then the AACQ for that Contract Year will be increased by an amount of LNG sufficient to make up the GHV Underdelivery (whereupon the AACQ for the next following Contract Year will be reduced by an equivalent amount of LNG).

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2. Except in the case of the last Contract Year, if, during the development of the Annual Delivery Programme for a Contract Year or during that Contract Year itself, it is apparent that the delivery of the AACQ (together with any Make-Up LNG, scheduled to be delivered by the Seller to the Buyer at the Unloading Port during such Contract Year) would result in a GHV Overdelivery then the AACQ for that Contract Year will be decreased by an amount of LNG sufficient to eliminate the GHV Overdelivery (whereupon the AACQ for the next following Contract Year will be increased by an equivalent amount of LNG).

Seven Day LNG P-24

In calculating the quantity of LNG which the Buyer has taken delivery of at the Unloading Port in a Contract Year there will be included in such calculation the quantity of LNG which the Buyer has taken delivery of at the Unloading Port within the first 7 days of the next following Contract Year, provided such quantity was scheduled in the Annual Delivery Programme for the Contract Year in respect of which the calculation is being made (and such quantity will not be considered to have been taken delivery of by the Buyer in that next following Contract Year).

Attributed Order P-25

The aggregate quantity of LNG delivered in each Contract Year by the Seller to the Buyer at the Unloading Port will be attributed in the following order: (i)firstly, to the AACQ (calculated without reference to any increase for any Force Majeure Restoration Quantities, Make-Up LNG or Excess Cargoes but including the application of any Seller Downward Flexibility Quantity, Buyer Downward Flexibility Quantity, Seller Upward Flexibility Quantity or Buyer Upward Flexibility Quantity); (ii)secondly, to any Make-Up LNG; (iii)thirdly, to any Force Majeure Restoration Cargoes; (iv)fourthly, to any Excess Cargoes.

Deliver or Pay (LNG) P-26

If the Seller fails to deliver a Cargo when scheduled under this Agreement then the Seller will pay to the Buyer an amount equal to the Cargo Scheduled Quantity multiplied by the applicable Contract Price multiplied by • % (the Deliver or Pay Amount). The Parties agree that the Deliver or Pay Amount is a liquidated damage for which the Seller will be liable regardless of the level of the Buyer’s loss or liability which results from the Seller’s delivery failure. Cargo Scheduled Quantity means the total quantity of LNG which was scheduled to be delivered by the Seller as a Cargo under this Agreement.

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Wilful Arbitrage (LNG) 1. P-27

If in respect of an LNG Cargo the Seller fails (other than as a result of Force Majeure or reasons attributable to the Buyer) to make available all or any part of the Contract Quantity in respect of an LNG Cargo in each case, within forty-eight (48) hours after the end of the applicable Delivery Window the Seller Shortfall Quantity will be the amount (in MMBtu) by which the Contract Quantity in respect of such LNG Cargo exceeds the delivered quantity (if any).

2. If a Seller Shortfall Quantity arises then: (i)the Buyer will be under no obligation to take the quantity of LNG comprising the Seller Shortfall Quantity; (ii)the Buyer will use reasonable endeavours to mitigate any damages, and to minimise any costs and expenses, which it incurs as a result of the Seller Shortfall Quantity; and (iii)the Seller will pay the Seller Shortfall Payment to the Buyer, calculated as follows: (a)if the Buyer was able to procure replacement Natural Gas or LNG to replace the Seller Shortfall Quantity, an amount equal to the Buyer's documented costs incurred using reasonable endeavours to procure such replacement Natural Gas or LNG, less the amounts which the Buyer would have paid the Seller had the Seller delivered the Seller Shortfall Quantity; or (b)if the Buyer was unable to procure replacement Natural Gas or LNG to replace the Seller Shortfall Quantity, an amount equal to the Buyer's reasonable documented costs, charges, losses, damages, expenses and liabilities associated with terminating or failing to fulfil its resale arrangements and costs, fees, charges or expenses which the Buyer was not reasonably able to avoid, provided that the Seller Shortfall Payment will not in any circumstances exceed: (i) if the Seller Shortfall Quantity is caused by a Seller Wilful Default, an amount equal to the product of the Contract Price in respect of the LNG Cargo and the applicable Seller Shortfall Quantity; and (ii) in all other cases an amount equal to the product of • percent (•%) of the Contract Price in respect of the LNG Cargo and the applicable Seller Shortfall Quantity. Seller Wilful Default means any failure of the Seller to deliver an LNG Cargo (in whole or in part), where the principal reason for such delivery failure was the Seller’s intention to make a material profit elsewhere or to realise some other material commercial advantage.

End-Users 1.1 P-28

For the purposes of this Agreement the Buyer may designate any person as an End-user provided that in order for such person to be an End-user the total number of End-user at any time will not exceed [insert number] and the agreement for

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Appendix D - Additional Provisions, UKBC-GASLNGS 493298853 (2023)

the sale and purchase of Gas between the Buyer and an End-user will entail a firm commitment to take and/or pay for a quantity of Gas of not less than [insert number] mscf /d.

1.2 The Buyer will give notice to the Seller of any person satisfying the criteria set out in Article 1.1 which the Buyer wishes to designate as an End-user and will include in such notice the quantities of Gas to be sold to that person by the Buyer and the duration of the agreement between the Buyer and that person.

1.3 With effect from the date specified in any notice given by the Buyer in accordance with Article 1.2 (and subject to Article 1.1) the relevant person will be an End-user for the purposes of this Agreement until the termination of the agreement between the Buyer and that person.

1.4 A person may continue to be an End-user if the Buyer and that person enter into a further or replacement agreement for the sale and purchase of Gas provided that the criteria set out in Article 1.1 remain satisfied in respect of that person and the Buyer gives notice thereof to the Seller in accordance with Article 1.2.

1.5 The Buyer may from time to time designate a person to be an End-user as a replacement for any person already so designated as an End-user in accordance with this Article 1 provided that the criteria set out in Article 1.1 remain satisfied in respect of that replacement person and the Buyer gives notice thereof to the Seller in accordance with Article 1.2. End-user means any person to which the Buyer has contracted to resell Gas which the Buyer has purchased from the Seller in accordance with this Agreement and which satisfies the requirements of Article 1.

Termination Fee P-29

If this Agreement terminates as a result of a notice being served by the Terminating Party in accordance with any of Articles [insert reference to fault-based termination] then within [insert number] days of the Effective Date of Termination the Non-Terminating Party will pay to the Terminating Party a termination fee in an amount equal to the Buyer Termination Fee (where the Buyer is the Non-Terminating Party) or the Seller Termination Fee (where the Seller is the Non-Terminating Party). Buyer Termination Fee means an amount based on the following calculation: (a)the greater of (i) the remaining number of complete months in the Term following the month in which the Effective Date of Termination occurs and (ii) [insert number] months, multiplied by: (b)the ACQ for the full Contract Year preceding the Contract Year in which the Effective Date of Termination occurs, divided by 12 (provided that if the Effective Date of Termination occurs in a Contract Year prior to there being a full preceding Contract Year the ACQ for this calculation will be deemed to be [insert amount]), multiplied by:

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(c)US$ [insert amount] for each mscf in the amount calculated pursuant to the preceding (a) and (b). Seller Termination Fee means an amount based on the following calculation: (a)the greater of (i) the remaining number of complete months in the Term following the month in which the Effective Date of Termination occurs and (ii) [insert number] months, multiplied by: (b)the ACQ for the full Contract Year preceding the Contract Year in which the Effective Date of Termination occurs, divided by 12 (provided that if the Effective Date of Termination occurs in a Contract Year prior to there being a full preceding Contract Year the ACQ for this calculation will be deemed to be [insert amount]), multiplied by: (c)[insert number] %, multiplied by: (d)US$ [insert amount] for each mscf in the amount calculated pursuant to the preceding (a) and (b).

Use of Confidential Information P-30

Each Party acknowledges and agrees that: (i)each other Party is or may be in the [gas][LNG] trading business; (ii)such other Party’s [gas][LNG] trading activities may, from time-to-time, be adverse to the [gas][LNG] trading or market positions of the Party; and (iii)such other Party may review and use the contents of this Agreement in its commodity trading activities (including engaging in trading or other related activities (including hedging arrangements related to this Agreement) and the development of internal pricing and valuation models relating to the performance of this Agreement and/or the further sale of [gas][LNG] under this Agreement) provided that in all cases doing so will be without prejudice to the obligations of a Party under this Article [confidential information].

US LNG Export Restrictions 1. P-31

Where the LNG to be sold and delivered under this Agreement is loaded in the United States of America: (i)each Party will comply with the applicable Export Authorisations; (ii)the Buyer may resell or transfer LNG purchased under this Agreement for delivery only to a purchaser in a Permitted Destination and/or to a purchaser which has agreed in writing to limit its direct or indirect resale or transfer of such LNG to a person in a Permitted Destination; (iii)the Buyer will promptly upon request by the Seller provide a report which identifies the country (or countries) of destination into which LNG purchased under this Agreement is to be and/or was actually delivered and such other information as the Seller may reasonably require to evidence compliance with the applicable Export Authorisations;

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(iv)the Buyer will include in any contract for the resale or transfer of LNG purchased under this Agreement provision to ensure that the purchaser thereunder is made aware of and will assist the Buyer to meet the requirements of this Article 1; if any of the applicable Export Authorisations is issued or modified in such a way to require additional or modified terms and conditions to be included in this Agreement the Parties will promptly discuss in good faith the appropriate changes to be made to this Agreement and will promptly amend this Agreement accordingly; and (v)the Buyer will not act or omit to act in a way which might or does cause any of the applicable Export Authorisations to be modified, withdrawn, revoked, suspended or not renewed.

2. The Buyer will keep all records necessary to confirm its compliance with Article 1 for a period of five (5) years following the year for which such records apply.

3. If a Party fails to comply with any of its obligations under Article 1 or Article 2 then: (i)that Party will be responsible for and will indemnify the other Party against any loss or liability which the other Party may have as a consequence of such failure; and (ii)the other Party may, by giving written notice which will be effective immediately, cancel any quantity of LNG which is to be delivered pursuant to this Agreement and/or terminate this Agreement. Export Authorisation means an applicable Department of Energy – Office of Fossil Energy (DOE/FE) Order identified by an order number, issue date and docket number, which grants to the authorisation holder the right to export or re-export LNG, directly or indirectly, to certain countries: (i) that the United States has a free trade agreement with; or (ii) that the United States does not have a free trade agreement with but with which trade is not prohibited by United States law or policy. Permitted Destination means a country which is identified as such in an Export Authorisation.

Contract Time 1. P-32

Adjustments to Contract Time (including transitions of the clock forwards and backwards to take daylight savings time into account) will follow the requirements of any applicable law, regulation or custom applicable in [insert location].

2. Deliveries of Gas in accordance with this Agreement in respect of any day when any such transitions of the clock are effected will be adjusted as follows: (i)if in consequence of such a transition a day has 23 hours then the quantity of Gas due for delivery in respect of that day will be reduced by 1/24 to give 23/24 of the original quantity of Gas due for delivery in respect of that day;

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(ii)if in consequence of such a transition a day has 25 hours then the quantity of Gas due for delivery in respect of that day will be increased by 1/24 to give 25/24 of the original quantity of Gas due for delivery in respect of that day.

Trade Restraints 1. P-33

Throughout the Basic Term a Party will not (and will not be obliged to) sell, deliver, purchase, take delivery, transport, make payment or accept payment for [a quantity of Gas] [an LNG Cargo] where doing so is or would be in violation of a Trade Restraint applicable to such [quantity of Gas] [LNG Cargo].

2. The Seller warrants and represents (as a continuing warranty and representation repeated on each Day of the Basic Term) that any [quantity of Gas] [LNG Cargo] which the Seller sells, delivers or transports to the Buyer in accordance with the terms of this Agreement is in violation of a Trade Restraint applicable to such [quantity of Gas] [LNG Cargo] at the point of such sale, delivery or transportation.

3. The provisions of Article [reference force majeure] will only apply in respect of any [quantity of Gas] [LNG Cargo] which is in violation of a Trade Restraint in respect of an affected Party where that Party did not know or could not reasonably have known that a Trade Restraint would be applicable to such [quantity of Gas] [LNG Cargo] at the time when the affected Party’s affected obligation arose.

4. A Party which [knowingly] sold, delivered, purchased, took delivery, transported, made payment or accepted payment for [a quantity of Gas] [an LNG Cargo] where doing so was in violation of a Trade Restraint applicable to such [quantity of Gas] [LNG Cargo] will fully indemnify the other Party against any loss or liability which the other Party incurs in consequence thereof. Trade Restraint means any law, regulation or resolution of the European Union, the United Kingdom, the United States or the United Nations relating to trade sanctions, trade or currency controls or the control of terrorism.

End of Document

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