Take a look at this website - it's an EXCELLENT RESOURCE; the best I've come across.
http://www.natgas.info/html/gascontracts.html
The video at the end is absolutely FANTASTIC - well worth the time to watch!
The video may stop 31 minutes in ... here's the full video:
http://www.youtube.com/watch?v=HNmHZlVHoCk
The conclusion .... IOC will make a fortune very soon!!!!
The GS&P Contract between XOM and IOC/ PAC LNG/ PNG Government is not rocket science (see below) and should be signed soon.
Gas Sales Agreements
The pipeline gas sales agreement (GSA) is also known as a gas purchase agreement (GPA) or a gas sales and purchase agreement (GSPA). These agreements between a producing company or sales agent (seller) and a consuming company (buyer) usually cover a number of provisions.
- Term. The term of a GSA can be as short as one day or as long as the economic life of the field from which the gas is produced. Internationally, especially where a gas development project will have a limited number of potential customers, the terms could reach 20 or 30 years.
- Quantity. Broadly speaking, there are two distinct types of volume commitments contracts: depletion contracts and the more common supply contracts. Under depletion contracts, also called output contracts, the producing company dedicates the entire production from a particular field or reserve to a buyer. In contrast, supply contracts commit the seller to supply a fixed volume of gas to the buyer for fixed term, typically 20 to 25 years. The seller is responsible for sourcing the gas, either from its own reserves or from third parties, if its own reserves are inadequate to fulfill the obligations.
- Price terms. Gas must be priced at a level competitive with alternate fuels in the marketplace and provide an adequate return for all parties in the chain. Pricing may be fixed, fixed with escalators, or floating. A fixed price is a set negotiated price over the term of the contract and is usually found in shorter-term contracts. A fixed price with an escalator is a fixed price that changes by a certain percentage every year or other specified time frame to reflect an inflator or an index of a known variable. Indexing prices helps to ensure gas price competitiveness to alternate fuels and helps to integrate changes in the marketplace without renegotiating long-term contracts. Most gas contracts in Europe are indexed to the price of crude oil or other liquid fuel products imported by the gas buying country. Alternatively, a floating price varies according to prices reported by unbiased sources, such as newspapers and NYMEX quotations. In this case, the contracts are revalued every month or every week according to the reported prices. Prices, both fixed and floating, may also be limited to a maximum ceiling price or a minimum floor price for the term of the contract. Contracts may also have combinations of fixed and floating prices.
- Delivery obligation. The terms of delivery may be firm or flexible. Firm delivery implies an obligation by the producing company or seller to deliver the specified quantities over the term of the contract. If the delivery obligation is not fulfilled, the seller may be obliged to pay damages or cover the costs of alternate fuels used by the buyer. Flexible delivery obligates the producing company to make attempts to fulfill the delivery obligation but does not require fulfillment of all the delivery obligations.
- Take-or-pay (TOP) obligations. The basic premise of take-or-pay (TOP) is that the buyer is obliged to pay for a percentage of the contracted quantity. This is true even if the buyer is unable or fails to take the gas supplied by the seller, other than due to fault of the seller or force majeure incidents. The seller usually imposes this obligation on the buyer to guarantee a predictable minimum cash flow, and financial institutions involved in the gas field or pipeline development may require these obligations as a condition for financing.
- Delivery point. This is the physical location where gas is delivered to the buyer. It could be at the gate of the power plant, the hub for a city grid, an interconnection of two pipeline systems, the site of a compressor, international border, or the fence of an LNG plant. This is often, but not always, the same geographic point where custody transfer—transfer of ownership and responsibility-of the gas takes place.
- Gas quality. The GSA clearly states the quality of gas, including its maximum and minimum heating values (in Btu/MMcf units); maximum level of impurities like oxygen, CO2, SOx, and NOx; the delivery pressure; and water vapor content. If the seller delivers off-specification gas, buyers may be able to demand a discount, a reduction in TOP obligations for the period, or other remedies as specified in the GSA.
