LNG PRICE REVIEWS IN ASIA: KEY INSIGHTS FROM RECENT EXPERIENCE
Price review clauses have for decades been a feature of long-term liquefied natural gas (LNG) sale and purchase agreements (SPAs) for delivery into Asian markets. That being said, Asia has not seen the same glut of gas price reviews and associated gas price arbitrations that Europe has experienced, particularly over the last decade or so. That dynamic is now changing. With traditional, non-adversarial attitudes to formal price review processes shifting in line with underlying market dynamics, we are seeing a noticeable spike in price review activity.
In this article, we share key insights and tips on LNG price review processes in Asia and provide suggestions for the drafting of price review clauses going forward.
Insights so far
While contractual provisions providing for price reviews – and the price review processes themselves – are confidential between the parties concerned, we are noticing a number of emerging trends.
A recurring theme in many of the price reviews with which we have been involved has been a lack of certainty as to what happens when the parties fail to agree on a new price. Many Asian LNG SPAs include provisions for negotiations on a new price, following the triggering of the price review, often after a set number of years from the date of first delivery, but fail to provide any explicit mechanism, such as arbitration, for resolving deadlock in those discussions. Whether such drafting is a result of conscious or unconscious decision making is unclear. What is apparent, however, is that such clauses have introduced significant uncertainty for the parties when negotiations break down.
Jan-Mar 2020 issue
Ashurst LLP