Lng Sales and Purchase Agreement

2 June 2022

LNG Sales and Purchase Agreement: Key Elements and Considerations

A Sales and Purchase Agreement (SPA) is a legally binding contract that outlines the terms and conditions of the sale and purchase of goods or services between two parties. In the liquefied natural gas (LNG) industry, SPAs are essential to facilitate the trade and transportation of LNG between buyers and sellers. This article will discuss the key elements and considerations of an LNG SPA.

Key Elements of an LNG SPA:

1. Quantity and quality: The SPA should specify the quantity of LNG to be delivered and the quality standards that the LNG must meet. The quantity should be expressed in metric tons or cubic meters, and the quality should be in accordance with international standards, such as ISO 8217.

2. Delivery terms: The SPA should specify the delivery terms, including the delivery period, the delivery location, and the delivery methods. The delivery location can be a port or a terminal specified by the buyer, and the delivery methods can include vessel, truck, or pipeline.

3. Price and payment terms: The SPA should specify the price of the LNG and the payment terms. The price can be fixed or variable, and the payment terms can include advance payment, letter of credit, or deferred payment. The price and payment terms can also include provisions for price adjustments, such as indexation to oil or gas prices.

4. Force majeure: The SPA should include a force majeure clause that outlines the circumstances under which the buyer or seller may be excused from their obligations due to unforeseeable events, such as natural disasters or political disruptions.

5. Dispute resolution: The SPA should include a dispute resolution mechanism, such as arbitration or mediation, to resolve any disputes that may arise between the buyer and seller.

Considerations for an LNG SPA:

1. Risk allocation: The SPA should allocate the risks and liabilities between the buyer and seller, such as the risk of loss or damage during transportation or storage. The risk allocation should be based on the parties` respective roles and responsibilities, and the risk appetite of each party.

2. Regulatory compliance: The SPA should ensure compliance with the regulatory requirements of the countries of origin and destination, such as export and import licenses, taxes, and customs duties.

3. Operational flexibility: The SPA should allow for operational flexibility, such as the ability to change the delivery schedule or the delivery location due to operational or commercial reasons.

4. Confidentiality: The SPA should ensure the confidentiality of the commercial and technical information exchanged between the buyer and seller, such as the pricing formula or the LNG specifications.

In summary, an LNG SPA is a complex and crucial agreement that sets out the terms and conditions of the sale and purchase of LNG between buyers and sellers. The key elements and considerations discussed above should be carefully considered to ensure a successful and profitable LNG trade.