LNG SALES AND SHIPPING: THE EVOLUTION OF DELIVERY TERMS FROM THE EMPIRICAL TO THE EXISTENTIAL

From the beginning of the seaborne liquefied natural gas ….. liquefaction of natural gas to produce LNG has its origins in the laboratories of 19th …

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JOHN COGAN From the beginning of the seaborne liquefied natural gas industry over forty years ago until recently, delivery terms for virtually all LNG sales were either FOB the liquefaction plant or DES the re-gasification plant. Details relating to the hand-off of an LNG cargo from seller to buyer and the corresponding transfer of risks were established in relatively straight-forward contractual provisions that reflected standard INCOTERMS definitions. As the relationships between LNG buyers and sellers have become increasingly complex and new participants have entered the LNG club, new arrangements for LNG deliveries have evolved. These arrangements now include deliveries which are, in effect, made on CIF terms. Some parties are even considering deliveries on the high seas. It is important that these new arrangements be properly examined, creatively analyzed, and carefully documented in a fashion that effectively (1) deals with the unique physical characteristics of LNG, a very cold, perishable commodity, (2) addresses the commercial realities of ever more sophisticated LNG trades, and (3) minimizes the incidence of taxation. I. THE NEED FOR CERTAINTY YET FLEXIBILITY IN DELIVERY TERMS… 36 II. LNG: A COLD, PERISHABLE CARGO … 38 III. EXAMINING THE LIKELY ALTERNATIVE DELIVERY TERMS … 39 A. FOB and DES Sales … 39 B. CIF Sales … 41 C. Sales on the High Seas… 44

Chairman, Global Projects Group, Akin Gump Strauss Hauer & Feld LLP. jcogan@akingump.com. Mr. Cogan advises clients on a broad range of international development and project finance transactions in the energy, mining, and petrochemical sectors. Much of his practice over the last 35 years has involved LNG projects in both the Atlantic and Pacific basins. Most recently, he has served as principal outside counsel to the LNG tanker acquisition team for a major Middle Eastern LNG producer and has also advised on a number of projects involving North American LNG import terminals. He has been named one of the world\’s leading energy and natural resource lawyers in Chambers Global: The World\’s Leading Lawyers and in the International Financial Law Review 1000, and one of the top five international lawyers in Texas by Texas Lawyer.

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