In an article published in Oil, Gas & Energy Law*, Luis Agosti and Boaz Moselle describe several types of commercial disputes in long-term liquified natural gas (“LNG”) contracts that are not directly related to the more common price review type disputes. They identify a common thread to many such disputes: differences between contract and short-term prices give rise to arbitrage opportunities, and parties are unable to agree on how the payoff from arbitrage should be shared between them.
LNG trade has increased at double digits in the last three years, and LNG markets have become increasingly complex over the last decade, with more diverse market players and more varied forms of contractual arrangements. One notable development has been the growth of spot and short-term LNG trading, which was less than 20% of all trade in 2010 but by last year made up 34%. However, the majority of LNG is still traded under long-term contracts indexed to oil or US hub prices. It is the difference between those prices and short-term prices that at times gives rise to large arbitrage opportunities.
Agosti and Moselle explain how the price differentials of LNG markets and contracts appeared in the past, and why they are likely to continue to arise in the future, given the prevalence and variety of long-term contracts that currently coexist with a growing LNG spot market. They also discuss potential disputes related to force majeure events arising from the COVID-19 outbreak as some LNG buyers in China, among others, have notified force majeure that have been rejected by sellers, leading potentially to a new wave of disputes.
READ THE ARTICLE (Published by Oil, Gas & Energy Law)
*L. Agosti; B. Moselle “LNG Disputes Beyond Price Reviews” OGEL 3 (2020), www.ogel.org/article.asp?key=3894