LIQUID NATURAL GAS

LNG SALES AGREEMENT

ASR - LNG SPA 1

1. Basic of Gas Sales
Key differences between oil & gas

Concentrated form of energy

Easy to handle through interruptible,

flexible chains & less logistics cost

70% not substitutable in the market

Diffuse form of energy

Difficult to handle, reqs non interruptible,
rigid chains & more logistics cost

Fully substitutable

ASR - LNG SPA 2

 1. Basic of Gas Sales
Oil & Gas Sales Scheme

Oil resource Oil Transportation Oil Refinery Oil Truck Retail Station

Gas Pipe

Gas Economic & Markets

Gas resource Gas Market

Liquefaction Gas Transportation Re- gasification

ASR - LNG SPA 3
1. Basic of Gas Sales Diffuse energy
become
concentrated
Nature Of The Gas Business energy

Delivery issue
Technical challenges
(nature of the gas)

Gas
Business
Economy of scale
(gas reserve, Commercial challenges
delivery capacity)

Gas/LNG is not Suitable sales

a commodity market Geopolitics agreement
(yet) Instability

ASR - LNG SPA 4

1. Basic of Gas Sales
Gas Utilization

Domestic Export
Interchangeability
Fuel
Woobe No, Gross Heating
Value
Manufacturing
Gas is not really
oil substitution
Feed Stock Petrochemical

Synthesis Gas / Gas to Liquid

Others Oil Recovery enhancement

ASR - LNG SPA 5

1. Basic of Gas Sales Based on estimated
Economical Recoverable
Upstream Contract TypesReserves (ERR)

Q Depletion Contract 1. High flexibility for seller

2. Part of risk transfer to buyer

3. Price will then be lower

1. low flexibility for seller

Q Supply Contract
2. Definite annual gas volume
for definite number of year

3. Price will then be higher

T
ASR - LNG SPA 6
 Originally design for selling
1. Basic of Gas Sales
gas in the summer when
demand is decreasing
Upstream Contract Types

Q Interruptible Contract 1. Interruption done by seller

through a short notice

2. Price will then be very low

1. Definite gas volume for specific

Q Peak Shaving Contract
define period (e.g. winter)
2. Separate or additional contract

3. Price will then be very high

QI Q II
T
Q III Q IV
ASR - LNG SPA 7
1. Basic of Gas Sales

Upstream Contract Types

Seller Nomination Contract

The Buyer shall lift the nominated quantities by the producer.

Applies for associated gas or for an early production phase

Spot Contract

The Commitment to supply limited additional quantities

during contractually defined periods.

Prices is considered very high

ASR - LNG SPA 8

1. Basic of Gas Sales
Why LNG

Development of liquefaction
& transportation technology

Environment issues
Mode of transportation (Tokyo protocol,
(Volume ratio 1 : 600) CO2 emission)

Energy supply LNG is attractive ? Globalization

security

Gas based industrial

Monetizing proven gas
reserves & stranded gas efficiency (CCGT),
10% 15% losses
Pipe line limitation
(technology, cost, security)

ASR - LNG SPA 9

 2. The LNG SPA

The Agreement Process

The Parties record their Binding mutual agreement to sell

intention to further discuss & purchase LNG as define on the
the possibility for entering SPA several agreed conditions

SPA

MOU HOA (Sales & Purchase Agreement)

The Parties record their intention to

pursue negotiations for more definitive
SPA consistent with several agreed
principles (terms of reference)

ASR - LNG SPA 10

 2. The LNG SPA

LNG Sales & Purchase Agreement

Binding mutual agreement to sell & purchase stated volumes of

a defined LNG products at agreed times, places & price (formula)

The important part of the LNG chain, due to back to back to

other related contracts & plays major role for project financing

ASR - LNG SPA 11

 Oil & Gas System

Liquefaction LNG
Flare

Gas NGL Gas sales

Processing Extraction (C1 & C2)
NGL sales, Condensate
Gas & LPG (C3 & C4)

Crude Oil Oil Crude Oil

Reservoir Oil sales
Separation Treating (C7+)
Water

Produced Water disposal or

Water Treating re-injection

ASR - LNG SPA 12

 Natural gas LPG - LNG
LPG Composition

LNG Composition

Natural Gas Composition

ASR - LNG SPA 13

2. The LNG SPA

Content of The LNG SPA

Commercial Issue

Technical & Operation Issue

Legal Issue

ASR - LNG SPA 14

2. The LNG SPA
Commercial Issue

Quantities & Qualities

To Secure
investment
Contract Duration repayment &
economic
Delivery Point, Title & Risk model
prospective
Price

Billing & payment

Duties, taxes & charge

ASR - LNG SPA 15

2. The LNG SPA
Commercial Issue - Quantities

Ramp up, Build up & plateau

Annual Contract Quantity (ACQ)
Volume Annual Adj. Contract Quantity (AACQ)
Take or Pay
Diversion & Destination clause

Upward & Downward Allowance

Variation Round Up & Round Down

Priority Order

Make up & Make good

Default &
Adjustment Carry forward & advance make good

Force Majeur Deficiency

ASR - LNG SPA 16
2. The LNG SPA
Commercial Issue - The applied TOP volume
Quantities
based on ACQ or AACQ
Take Or Pay (TOP)
Clause in the SPA that Buyer shall take & pay for contract
quantities at the contract price or pay for quantities which are not
taken (Less than AACQ)

Carry the principle of liquidated damages

Important for Lender & seller

(capital investment & operational expenses)
Discouraging buyer from over contracting
Simple mechanism to avoid going to
court
ASR - LNG SPA 17
 2. The LNG SPA

Commercial Issue - Qualities

Gross Heating Value Agreed calculation procedure

(Btu/scf) Range of max min limit

Hydrocarbon
Composition Impurities (CO2, H2S, Total Sulfur)

Water content

Max HC Dew Point Temp.

Others
Woobe Index

ASR - LNG SPA 18

2. The LNG SPA

Commercial Issue - Qualities

Example LNG specification :

Nitrogen (N2 ), 1 mol %
Methane (C1 ), not less than 85 mol %
Butanes (C4 ) & heavier, 2 mol %
Pentane (C5 ) & heavier, 0.1 mol %
Hydrogen Sulfide (H2S ), 0.25 grains/100 scf
Total sulfur content, 1.3 grains/100 scf

ASR - LNG SPA 19

LNG Heating Value Behavior Sources : IGT

LIQUID PHASE

ASR - LNG SPA 20

2. The LNG SPA
Commercial Issue - Duration

Contract duration > 20 years

Investment guarantee for Seller (LNG plant

Traditional Long
Term & buyer (receiving terminal & others)
The price follows spot
Base for developing Base Load LNG Project
market & subject to
Contract
transportation duration < 10 years
availability

Short Term Strategy (buyer) to anticipate the

dynamic of business environment (oil
price, de-regulation, growth, etc)

To accommodate abnormal condition

Seasonal
/spot cargoes Monetizing excess production capacity

ASR - LNG SPA 21

2. The LNG SPA
Commercial Issue Delivery Point, Title & Risk
Transfer of
Free On Board (FOB) Title

Receiving Terminal
Gas resource LNG Plant Shipping

Cost, Insurance & Freight (CIF)

Delivered Ex Ship (DES)

ASR - LNG SPA 22

 2. The LNG SPA
Commercial Issue Price

Value
(max buyer affordability)

Supplier risk Buyer expectation

Off take condition

Government constraint

Assurance of off take Price

Security of supply

Government pressure Inter fuel competition

Supplier aspiration Buyer risk

Cost
(min seller acceptability)
ASR - LNG SPA 23
2. The LNG SPA
Commercial Issue - Price Well Head,
processing w/o
transportation
Parity to oil, other cost
fuel
market price, other gas
Base Price (P0) price
Market opportunity, future
forecast
Indexation Formula

$/MMBtu A change of country,

seller or buyer economic
Reference Period
circumstances

Price Review

ASR - LNG SPA 24

2. The LNG SPA
Commercial Issue - Price

Fixed Price Standard Pricing Pricing with Cap

LNG Price
LNG Price

LNG Price
Crude Price Crude Price Crude Price

Pricing with Floor Pricing with collar S-Curve

LNG Price

LNG Price
LNG Price

Crude Price Crude Price Crude Price

ASR - LNG SPA 25
2. The LNG SPA
Commercial Issue - Price

Europe

USA
Oil or oil Product Linkage Asia
Brent oil or oil product
P = f ( P oil Product )
Percentage sharing of revenue
or Crude oil Linkage
Net back Gas Price Index ICP, JJC
Henry Hub or So-Cal P = Slope X P Crude + C
P = Index Price Location Differential

ASR - LNG SPA 26

 2. The LNG SPA
Commercial Issue Future Price

Price Arbitrage

Globalization Crude Disconnect

Flexible SPA
Liberalisation $/MMBtu
Destination Clauses
New
Emerging Price Review
Player
Market Opportunity

Technology

ASR - LNG SPA 27

2. The LNG SPA
Commercial Issue Billing & Payment

Procedure for exchanging information (volume, quality)

Mechanism to issue invoice (seller), payment (buyer) & due

dates

Sellers right upon buyers failure to make payment (suspend

subsequent delivery, termination, etc)

Disputed invoices solution

ASR - LNG SPA 28

2. The LNG SPA

Technical & Operation Issues

Sources Of Supply

Transportation &
Loading/Unloading

Annual Program

Measurement & test

Safety

ASR - LNG SPA 29

2. The LNG SPA

Technical & Opr Issues Transportation & Loading/Unloading

Transportation (by seller or buyer)

Transportation
LNG ship spec. & performance

Appropriate facilities for operation

Loading (FOB) or
Unloading (DES/CIF) Operation arrangement
Facilities
Information arrangement (NOR, ETA)

Purging, cooling down, boil off

Deviation
Delay, demurrage

ASR - LNG SPA 30

2. The LNG SPA

Technical & Opr Issues Annual Program

Advance agreed proposal of delivery

Lifting Schedule Based on prod. , Inventory & send out

Seller & Buyer berths occupancy

Annual Adjusted Quantities

BTU Calculation Carry forward, round up/down

Quantities priority arrangement

Prod. fac. & vessel repaired schedule

Others
Time frame arrangement

ASR - LNG SPA 31

 2. The LNG SPA

Technical & Opr Issue Measurement & Test

Agreed method & procedure (sampling)

Custody Transfer
Equipment Calibration & inspection arrangement

Seller, buyer & fiscal authority approval

Independent
Witness & verification
Surveyor

Bases for invoicing, billing & payment

Others
Cost & expenses allocation

ASR - LNG SPA 32

2. The LNG SPA
Legal Issue

Definitions & Interpretation

Authorization & Approval

Force Majeure

Liabilities

Arbitration

Confidentiality

ASR - LNG SPA 33

2. The LNG SPA

Legal Issue Force Majeure

Condition that release seller/buyer responsibility for any delay, failure in

performance resulted from any causes or events not reasonably
within the control of such party such as earthquake, war, riot, serious
failure to reservoir & facilities, Government Act, etc.

Suspend the Triger obligation Could impact to

SPA performance for quantity restoration other responsibility

ASR - LNG SPA 34